SOURCES OF CAPITAL

For someone considering a new business, the initial excitement of plans and dreams can be quickly replaced by the realities of financing. Where does the money come from to start a business? How much is necessary to start and support the business until it begins to show a profit?

Since there is no predetermined period of time after which a busi­ness is guaranteed to survive, capital must be discussed in terms of initial funding and subsequent funding necessary to sustain the busi­ness. Capital is needed for two reasons. One is to purchase fixed assets such as real estate, coolers, furniture, equipment, and similar items. The other is to pay wages, purchase supplies, and pay utility bills. Such funds are termed working capital.

There are three ways to obtain capital for a business:

1. Use your own money or that of other people willing to invest their money in your business.

2. Borrow from lending institutions such as banks, insurance com­panies, and loan companies; or from persons seeking to buy into the business as limited partners; or from other companies that will market your future crop and are willing to pay you in advance (termed contract growing).

3. Return the profits of the firm to the business for use as capital.

Each method of raising capital has features that may make it the appropriate or necessary choice.