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Sources of capital

The sources from which businesses, whether private, corporate, or state-owned, obtain their capital. One major source is the savings of the owners of private businesses, and the undistributed profits of companies. A second major source is borrowing, either by selling bonds or borrowing from banks and other financial intermediaries. A further source of capital is selling equity shares. A large amount of fixed investment is financed firom the depreciation allowances on existing equipment. Stocks of material are often financed by trade credit from suppliers. The government is also a major source of finance. Some businesses are publicly owned, and their capital is provided by the government. Governments make some capital transfers to finance investment, for example by housing associatioris. They also frequently tax businesses under rules which decrease business taxes if investment is undertaken: companies which invest pay less tax, or are allowed to pay later, than companies with equal profits but less investment.

Reference: Oxford Press Dictonary of Economics, 5th edt.