It is pretty common that a new company is established with the minimum equity, but later on further fund is necessary to continue the business before it achieves the break-even point. But older companies
happen to face less prosperous periods, when additional money is required to keep the business running. The banks are usually not willing to provide loans to such enterprises.
If the owners have the necessary funds, they can help their company more ways. The first idea usually is to give a loan to ourselves. This step can help the current cash flow, but in longer term there are disadvantages. Not only accruing the legally expected interest payable, but increasing the liabilities, while the equity of the company is still low.
The other way is the payment of additional capital. It needs a little more preliminary administrative work, because the deed of association should properly include this option, but the daily use is easy. The purpose of the additional capital is to cover the losses of the company. It is part of the owners' equity, so it helps to keep it at the requested level. Once the company is running well, it can be paid back to the owners. There is no time limit and no interest on it.
Should you need a consultation on this issue, do not hesitate to contact us at firstname.lastname@example.org
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