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Which of the following obstacles to getting financial capital can a company overcome:...

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lilylee | Student, College Freshman | Salutatorian

Posted June 4, 2013 at 10:09 AM via web

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Which of the following obstacles to getting financial capital can a company overcome:  Economic conditions, regulations, and competition for financial capital?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted June 4, 2013 at 1:29 PM (Answer #1)

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In theory, at least, it would be possible for a firm to overcome all of these obstacles.   In practice, they would all be very difficult to overcome in the short term. 

In theory, a company can overcome regulation, but it is not likely to be possible in the short term.   The only good way to overcome regulation is to get the burdensome regulations repealed.  This requires political effort.  The firm would have to hire lobbyists to try hard to persuade the government to change the regulations.  This can work, but it is unlikely to work quickly.

In theory, a firm can overcome economic conditions and get capital.  The problem is that the firm can only do this by demonstrating to lenders that it is in such good condition that it will not be harmed by the economic conditions.  It has to convince lenders that it is capable of remaining profitable even in bad circumstances.  This is possible, but it is not easy.

Some firms, at least, can certainly overcome competition.  When there is competition for financial capital, it is likely that at least one firm will win the competition.  Therefore, what the firm needs to do is to be better than the other firms.  It needs to be able to convince lenders that it is the company that would be best to lend to.  It could do this by showing that it is in very good condition and/or by offering better terms to those who would lend it money.

Thus, all of these obstacles can be overcome, though in some cases it will take a long time and/or it will only be possible for some firms.

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