Capital

Capital is the money or finance an enterprise needs to start up or expand. At start-up, capital pays for what the business needs before it makes sales — for example a deposit on a market stall, a card reader, a first batch of materials and some launch advertising. Later, an enterprise may need capital again to grow, such as renting a second workshop bay, buying extra equipment or paying for a part-time assistant.

An enterprise can need capital more than once. The same sources of capital can be considered at either stage, so a new business choosing how to fund its launch works through the same list of options as an established business planning growth.

Internal or external?

An internal source is the owner's own money: for a start-up, that means the owner's own savings. An external source comes from outside the enterprise: a loan from a bank or another financial provider, crowdfunding, a grant, a business angel, or a gift or loan from friends and family. Friends and family support is external even when it is informal, because the money comes from outside the enterprise.

More checks outside

External sources usually involve more paperwork, checks and formalities than using own savings or informal family support. A bank loan needs an application and credit checks; a grant needs an application and eligibility checks; a business angel may want a formal agreement about shares. These steps can take time, so the source chosen affects how soon the money can be used as well as where it comes from.

For example, a mobile bike repair service needs £800 for tools, a work stand and a first batch of parts. The owner's savings could be paid in straight away; a bank loan could raise more, but the application and credit checks mean waiting before the tools can be bought.