Raising capital: the limitation of domestics firm: no more funds for Wrexham FC.

Capital is the fundamental issue for company to grow and develop. There are two main external ways to raising funds: equity and debt. Each form has its own advantages and disadvantages. In this blog, I have only concern about equity financing.

Equity financing is less risky than a loan because firm does not have to pay it back, and it's a good option if company can't afford pay since it is in negative year. Instead, company can raise more funds from investors to the business. Then, company will have more cash on hand for developing the business. However, if company keeps not paying returns in a long period, it will be a trouble because investors see no benefits from holding the shares then they will sell their shares and invest in other profitable companies. Because of unguaranteed returns, shareholders may require returns that could be more than the interest rate. Moreover, investors will require some ownership of the company and a percentage of the profits. It will impact ownership of existing shareholders. There is no tax reduction if financing by equity.

Although there are some disadvantages of equity financing, equity is the fundamental source of capital. It would be positive if company raises a lot of funds from investors. It is an advantage of listed companies, especially, international listed company. If company is listed globally, the liquidity of shares, share price and the reputation of company are improves. As a result, cash flows and funds available are increasing.  

In contrast, it is the limitation of domestic firm when it does not be listed in stock market. It cannot raise enough funds if it needs. BBC News (2011), Wrexham FC fell into crisis since it faces tax bill. The company cannot pay the tax by its own internal resource. It needs help from its shareholders and lenders. However, Wrexham FC is non-listed comapny, it limits their capital financing sources. They can only lean on its investors’ help. However, the investors said that there would be no more funds available for Wrexham FC because they have been invested too much.  There is another way to raise funds is debt financing. However, in this negative situation, it must be risky if lenders give away their money because the Wrexham’s ability to pay back is low. They need to look at interest payment ability then no lenders is willing to give money to Wrexham FC except a small amount of fans of Wrexham FC. As a result, Wrexham FC is going to be takeover however, until now no investors is willing to commit the deal. Organization might go bankrupt and destroy shareholders wealth.