Introduction
Capital is among the leading factors of production. It refers to the total amount of money that companies keep to maintain daily operations for an existing business. It is rather intricate for many small and medium enterprises to find the best source of capital. As a result, this paper seeks to illuminate the types of funding/finance that would befit a project based in the United Arab Emirates.
One of the fundamental sources of financing involves the personal contributions from the founders of a particular business. It is either through making financial investments from one’s savings or dedicating one’s time and energy towards desired business objectives. Friends and family are a good source of capital for SMEs because while the financial contributions of friends and family are not usually much, they are quick to raise (Safai, 2018). Furthermore, financial aid from friends and family has relatively flexible payment terms.
Angel investors are more advanced sources of capital than friends and family. Angel investors seek to invest in startup businesses with a convincing business model. Angel investors often have business acumen and network connections relevant to the achievement of various business objectives. Therefore, angel investors do not provide mere capital but represent an excellent opportunity to manifest business ideas. Alternatively, one could involve more potential investors via crowdfunding. Crowdfunding is a contemporary way to raise money by engaging the overall public to make contributions through the internet. One conducts an online campaign to raise public awareness and await financial support and related aid from both well-wishers and people who are convinced about the utility of a particular business model.
Debt Financing is one of the most prevalent forms of capital financing, where entrepreneurs borrow money from financial institutions, such as banks and cooperative societies. These businesses utilize the finances to generate revenue, which is later used to pay off debts with some imposed interest. Alternatively, leasing is an excellent way for organizations to acquire different assets, especially if a business model involves expensive machinery. There are also companies whose role is to finance promising business enterprises that have not been publicly listed.
Sources of Capital Available in the UAE
Venture capitalists are typical in the UAE. Numerous organizations are committed to ensuring that promising companies are funded to achieve their potential (Safai, 2018). Similar to venture capitalists are angel investors. The UAE has a considerable number of citizens that have run multiple successful businesses. Such individuals tend to invest their spare funds in business ideas that can offer value to many people. Moreover, the income per capita in the UAE is higher than in most countries, and hence crowdfunding is also a good source of capital within this region (Safai, 2018). Debt financing is available as the UAE has an able banking system. Like in any other country, private funding and contribution from friends and family are common sources of income for SMEs in the UAE.
The Optimal Source of Capital for the Project
In context, the business project aims to have a ratio of Equity (75%): Paid-up capital, Debt (25%): Borrowing. Therefore, the optimal source of capital for the project at hand will be the use of personal savings, contributions from friends and family, crowdfunding, and the use of angel investors. Crowdfunding will ensure that our mission is made public for all interested supporters to contribute towards the cause. However, crowdfunding will last if the project fails to get an angel investor. Therefore, we will send this project’s details to a shortlist of prospective angel investors that would help propel the project to greater heights.
Conclusion and Recommendations
Small and medium businesses must understand the utility of capital in boosting the performance of business projects. There are four different types of capital: working capital, debt, trading capital, and Equity. Money helps businesses increase the scope of their business operations; hence, it helps promote the expansion of these businesses. More so, enterprises with a high initial capital have a competitive economic advantage.
Reference
Safai, S. (2018). Venture capital investment in the United Arab Emirates: Market and regulatory overview | Practical Law. Practical Law. Web.