C1 Insufficient Capital
Capital is the assets that a business owns and can use to support its operations. This includes money, property and equipment.
Unable to Secure Business Loans
Lenders are more likely to provide loans to businesses with higher levels of capital because they are seen as more financially stable and therefore less risky and more likely to be able to make repayments as they have reserves. Capital can be used as collateral to secure loans which means that if the business cannot repay the loan, the lender can seize capital to recoup the debt.
Profits not Sufficient to Cover Expansion
Without sufficient capital, businesses may struggle to make investments they need to remain competitive in the market. This may involve investing in more efficient machinery, developing new products, launching marketing campaigns or entering new markets. If competitors have more access to funding, they may be able to invest in faster growth.
Too Much Capital Tied up in Stock
Having too much money tied up in stock can cause cash flow problems for businesses. Money spent on stock is not available for other areas of the business until a customer has paid for it. Storage of stock is costly due to the space it needs and protection from damage or theft. If the stock doesn’t sell, the business can incur losses.
Poor Credit Control
Poor credit control can lead to a lack of cash available in the business if it does not manage their debtors effectively. Delayed inflows from debtors can affect the business’ ability to pay their own suppliers, lenders and employees. This can damage relationships and their reputation making it difficult to raise finance, order raw materials or attract good staff in the future.
