Capital

Definition

Capital is the stock of money and assets a business owns and deploys to generate income. In accounting and finance, it usually refers to the funds invested in the company — whether put in by shareholders, retained from profits, or borrowed — together with the assets those funds pay for. It is distinct from day-to-day revenue: capital is what you build the business with, not just what passes through it.

In plain terms

Think of capital as the financial fuel in the tank. It comes in two broad flavours. Fixed capital is tied up in long-life things — machinery, vehicles, premises, equipment. Working capital is the short-term money that keeps the lights on: cash, stock and money owed to you, less the money you owe out.

Capital can be equity (your own or investors' money, which doesn't have to be repaid) or debt (borrowed money that does). Most UK companies run on a blend of both. The right mix depends on how predictable your income is and how much control you want to keep.

Why it matters to your business

A business can be profitable on paper and still run out of capital — that's how solvent companies fail. Having enough capital, in the right form, at the right time, is what lets you buy stock before a busy season, pay staff while you wait for invoices to clear, or take on a contract bigger than your current cash allows.

Raising capital by giving away equity dilutes your ownership. Raising it through borrowing keeps you in full control but adds repayments. Short-term business finance is one way limited companies top up working capital without selling a stake — and at Credicorp the loan is to the company, with no director personal guarantee.

Example

A Manchester catering company wins a contract to supply a festival. It needs £40,000 up front for ingredients, extra staff and van hire, but won't be paid until 30 days after the event. Its fixed capital (kitchen, vans) is healthy, but it lacks the working capital to fund the gap. Rather than dilute ownership by bringing in an investor, the directors draw a short-term working-capital facility, deliver the contract, and repay once the festival settles its invoice. The capital structure stays intact and the founders keep 100% of the business.