Additional capital refers to the amount of money required to execute various extra-activities, which were not included in the initial business plan. The additional capital arises typically when a company or any business is undertaking other business activities such as expansion (Chi, Li, Trigeorgis and Tsekrekos 2018:20). There is, therefore, a need to raise capital equity for the business to cater for the additional capital requirements. Several options can be used by the company to increase capital equity, examples being loans, membership contribution, selling of shares, and government grants (Hutson, Lang, and Ye, 2018). A company’s debt also tends to increase additional capital since; they have to be paid from the company’s equity. However, the right issues and open offer are common terms used in the process of raising capital for any business (Rahardja and Varela, 2015). Both terms allow shareholders of the company to purchase additional shares directly from the company, thereby raising the capital of the firm.
During any business expansion process, there is a need to consider designing a new business plan to cater to all the additional capital. It is essential to make sure that all the financial requirements for the new business in a specific locality are met promptly to avoid any uncertainty or risks (Robinson and Ritch, 2016). After deciding on a particular country suitable for the expansion of the business activities, a company should ensure that the new budget is tested for sustainability before it can be implemented (Hamilton and Webster 2018). Executing all the business activities in Indonesia requires the Interserve company to raise additional capital that would cater to various company’s needs. The four sources of money to be considered by the firm are owners’ contributions, government grants, banks loans, and shares.
Contributions from the owners of the company will form a major source of the additional capital requirement. The owners of the company have the full responsibility of ensuring the firm access all the financial requirements, which is done through sourcing for the right channels of increasing the firm’s capital equity (Luthans, Youssef, and Avolio, 2015). Failure to meet all the capital requirements may necessitate the owners to fund the company from their pockets. Ownership contributions may be in the form of vendor pacing, where the purchasing company issues its shares, to another company with an agreement that the shares are exchanged with cash, which is produced by investors. As a result, the Interserve Plc may use a similar strategy to raise the additional capital requirement.
The government may sometimes, decide to assist a company when in a financial crisis through giving grants. Government grants are non-refundable capital donated by the government to support a company during expansion or when it is facing several challenges that may lead to its closure. Interserve Plc, being one of the largest construction company in the UK, the government may decide to bail it out during this expansion mission. Based on the firm’s history, it is clear that it has not been performing well and it nearly failed in the past years. Therefore, the government is concerned with its well being since; the government do not want it to fail again. As a result, the government grants will form another source of additional capital equity during the expansion of the company’s activities to Indonesia.
Bank loans form the largest source of capital used by most business companies around the world. Banks and other financial institutions usually offer loan facilities to companies based on their financial position and the net worth of the company. Types of loans provided by most banks are short-term and long-term loans, which differ in terms of repayment periods (Zhang, Cai, Dickinson, and Kutan, 2016). Interserve Plc being a large company in the UK, its net worth is high hence; it stands a better chance of securing a large amount of loan to accomplish the additional capital equity for the expansion of the business to Indonesia. Therefore, the company would use bank loans as a source of capital equity.
Shares form the largest source of a company’s capital since; they can be advertised to the public, for public liability companies, to increase the money raised. When a company requires capital, it usually resolves into using the right issue and open offer, which allow the shareholders of the company to purchase extra shares on top of what they own in the company. The practice allows for the raising of additional capital that can then be used to meet the company’s financial requirements. Shares can also be regarded as membership contributions since; they are directly linked to the shareholders of the company.