The money utilized by the entrepreneurs and industries in order to purchase whatever they may require to craft the products or to offer the service is generally known as financial capital. However, the term may even refer to the particular sector of an economy which is based on its various operations that may encompass retail, corporate, investment banking among various other similar and associated operations.
Before going further into the topic it is of utmost importance that the essential difference between the two often confused concepts should be clarified. These are financial and real capital. Now the term financial capital is used for referring to funds which the investors or the lenders provide for the business establishments in order to buy real capital equipment so that they can start to produce goods and services. Real capital, on the other hand includes the physical goods which will be able to lend a hand in the production procedure of goods and services that are separate from them such as items like shovels for the case of gravediggers, equipment and apparatus for factories or sewing machines for tailors.
However, it must be noted that there is always an element present called interest considered as the cost of the provision of financial capital to be paid to the lenders. Moreover, the very idea of financial capital or economic capital is in fact any kind of liquid means or apparatus that is assigned in order to represent assets and other such similar manners of capital. But then this concept is more than often used as a substituting concept for that of purchasing power particularly for the manufacture or acquiring of goods or even services among other elements mainly in the shape of funds available for the purpose. However, by adapting well thought out plans about production in excess of the immediate requirement and consequently the surplus being saved can also be quite an effective way of obtaining the necessary capital.
Primarily in order to serve certain academic purposes, the concerned scholars of the subject have often introduced certain concepts such as economic or productive capital that is essential for operations, signaling capital that point towards a company’s fiscal potency to its shareholders, and also something known as regulatory capital that functions mainly to fulfill certain capital requirements as broad categories under the umbrella structure of financial capital. Sources of capital can however be an entirely different ball game where one can easily identify three well defined groups of categorization. They are the long, medium and short term loans based on a difference of the time period which is more than seven years for the first, in between two to seven years in case of the second and normally below two years in case of short term loans. It should be noted that Share Capital, Venture Capital, Debenture, Project Finance, Retained Profit and Mortgage fall under long term loans; leasing and hire purchase under medium and finally factoring, trade credit, bank overdraft and deferred expenses belong to the short term category.