Financial capital
Also called: money capital · Topic: Factors of Production, Entrepreneurship and Startups · NCERT: Class 8, Ch 7 "Factors of Production"
Meaning
Financial capital is the money a business uses to buy physical capital, such as machines, tools, furniture and buildings. It can come from personal savings, family and friends, bank loans, or selling shares on the stock market. Borrowed money earns interest for the lender. Money raised by selling shares may earn a dividend, a payment the company makes to shareholders out of its profits. Without financial capital, most businesses cannot start or grow.
Example
Ratna's own savings were not enough to lease her restaurant site and buy kitchen equipment. She borrowed from a bank and repaid the principal plus interest over time. Micro-units can get MUDRA loans, such as Shishu loans of up to ₹50,000.
Don't confuse with
- Physical capital: this is the produced asset itself, such as an oven or a cart, and it wears out over time. Money is not physical capital. It is financial capital used to buy physical capital.