In the past twenty years, the capital markets have evolved to become truly global. However, despite having heard of them, most middle market business owners do not fully understand:

• how the capital markets can be used to best provide their companies with adequate funding to support operational and strategic growth needs,
• or how the capital markets can be used to reduce their companies’ weighted average cost of capital,
• or to assure capital adequacy for future business growth while, also, meeting current or future shareholder liquidity needs.

Global Capital Markets

The capital markets consist of the exchanges between savers and users of capital worldwide. Investment and finance have often been described as the opposite sides of the same coin. When someone saves or invests, their money is channeled to companies that are seeking to obtain and use capital for short- to long-term financial purposes.

For example, the investment capital received by a mutual fund manager from employee’s saving for retirement is, in turn, re-invested by the fund manager by purchasing shares in companies. The sale of shares by a company to the mutual fund secures capital for its business purposes. This is but one dimension of capital market activity.

Capital is invested by individuals of varying means, companies of varying sizes and other entities, such as dedicated family office retirement plans, university endowments, private banks, foundations, trusts and estates, and all for diverse purposes or durations. Capital investment can be direct (e.g., an individual purchases shares directly from an issuing company) or, most often, indirect (e.g., premiums are paid to an insurance company for some form of coverage and the insurance company, in turn, invests the monies it has received until claims are made).

Depending upon the investor’s time horizon, the form a capital market transaction assumes can range from an overnight loan, to a five-year note, to long-term non-callable or redeemable shares. Such transactions occur 24 hours a day, 365 days per year, and amount to trillions of dollars of funds flow. In fact, the total value of the global capital markets are now estimated to be in excess of $ 140 Trillion.

What does all of this mean to a closely-held, medium-sized company that needs capital to grow, or to provide shareholder liquidity, or is trying to reduce its weighted average cost of capital? It means that most companies have a much broader range of financing options than they realize. In fact, there are now as many as 26 generic financing options available for many middle market companies.

For more information on gaining better capital market access click here.