Access to finance is fundamental to business development. It underwrites innovation; take up of technology and exploration of new ideas. In Australia however, the Banks are generally too scared to lend to small to medium sized businesses.

The capital, or currency, of an individual is the cash they have in their wallet or purse, or as cash in the bank. However, an individual cannot print their own currency that would be counterfeiting which carries heavy penalties.

The capital (or currency) of a business enterprise however can be ordinary shares, redeemable preference shares, promissory notes, options etc. In contrast to an individual, a business or enterprise can print its own currency as legal tender, in the form of securities (shares, options debentures etc.)

A business can then use these securities as a type of “currency” to be swapped for cash, goods or services. As well as swapping shares for cash, an SME can also use its shares as a type of negotiable security or ‘bid currency’ for mergers, acquisitions or takeovers, unlike borrowing from a Bank, equity capital is contributed in return for a share of ownership. It is not repayable, demands no provision of security (other than issued shares) and bears no interest. The Australian Small Scale Offerings Board plays an important (and not insignificant) role in capital raising for SME’s.

For futher information on this topic please consider the following website: www.assob.com.au/raising_capital.asp

Source: www.isnare.com