The term "capital" can refer to a number of different concepts in the business world. While most people think of financial capital, or the money a company uses to fund operations, human capital and social capital are both important contributors to a company's overall financial health.
The following are different examples of types of capital:
1. Financial Capital
Financial capital is necessary in order to get a business off the ground. This type of capital comes from two sources: debt and equity. Debt capital refers to borrowed funds that must be repaid at a later date, usually with interest.
Common types of debt capital are:
- bank loans
- personal loans
- overdraft agreements
- credit card debt
Equity capital refers to funds generated by the sale of stock, either common or preferred shares. While these funds need not be repaid, investors expect a certain rate of return.
2. Human Capital
Human capital is a much less tangible concept, but its contribution to a company's success is no less important. Human capital refers to the skills and abilities a company's employees bring to the operation.
Though it's hard to quantify human capital in dollars, most companies know that employee performance can be greatly enhanced by continuing education classes, professional development seminars and healthy-living programs. Many businesses choose to invest in the happiness and well-being of their employees because this investment indirectly benefits the bottom line by cultivating a happier, more efficient workforce.
3. Social Capital
Social capital is an even more intangible asset, referring to the relationships people have to each other, and the desire they have to do things for and with others within their social networks. People tend to do things to help and encourage those in their same social network, creating a cycle of mutually beneficial reciprocity.
In business, a person with high social capital knows many influential people within his industry and may have more opportunities for advancement and development than someone whose social circle is small. People with high social capital may also have an easier time accomplishing things, both personally and professionally, because they can draw on the strengths and resources of others within their networks.