Capital Investment has two usages in business. Firstly, capital investment refers to money used by a business to purchase fixed assets, such as land, machinery, or buildings. Secondly, capital investment refers to money invested in a business with the understanding that the money will be used to purchase fixed assets, rather than used to cover the business's day-to-day operating expenses.
Objectives of Capital Investment
There are typically three main reasons for a business to make capital investments:
(1) to acquire additional capital assets for expansion, enabling the business to, for example, increase unit production, create new products, or add value;
(2) to take advantage of new technology or advancements in equipment or machinery to increase efficiency and reduce costs;
(3) to replace existing assets that have reached end-of-life, for example, a high-mileage delivery vehicle or an aging laptop computer.
Capital Investment and the Economy
Capital investment is considered to be a very important measure of the health of the economy. When businesses are making capital investments it means they are confident in the future and intend to grow their businesses by improving existing productive capacity. On the other hand, recessions are normally associated with reductions in capital investment by businesses.
Capital Investment for Business Financing
For entrepreneurs, breaking into a capital intensive industry can be very difficult as it requires a great deal of up-front capital. Even with a great idea and a strong business plan financing a capital intensive business can be challenging, depending on the type of business.
For example, banks may have no problem financing a builder for a new townhouse project (particularly in a strong real estate market), but much more reluctant to lend to someone who wishes to open a restaurant (an industry with a notoriously high rate of failure). In terms of securing the loan with collateral, a townhouse development is likely more appealing to the bank than a restaurant.
If you are unable to secure debt financing from a lending institution and do not have wealthy relatives or friends willing to invest in your business, you will most likely need to find angel investors who can provide equity financing for your business.
Angel investors will take an equity position in your new venture in exchange for providing funding. The most suitable angel investor would be someone whom you know, trust, and who trusts you. Someone who is familiar with your line of business would be especially useful as they may be able to provide advice and guidance with your new venture.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website www.tannet-group.net, or calling HK hotline at 852-27826888, China hotline at 86-755-82143181, Malaysia hotline at 603-21100289, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
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