Under capitalised

A company is considered to be under capitalised when it does not have sufficient money to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow, or is unable to access forms of financing such as debt or equity. If a company can't generate capital over time, it increases its chance of going bankrupt, as it loses the ability to service its debts. The most common reasons for under capitalised companies are: owners who did not understand the actual cost of starting a business; the inability to get access to finance due to lack of a trading history, lack of collateral or poor credit ratings; operating in a highly competitive field with no real product differentiators.