Why is Capital Essential for a Business? Understanding the Role of Capital in Market Uncertainty

When looking at the requirements for a company, the first requirement is to have capital. But why is capital necessary? It's easy to understand that starting a business requires money for buying equipment, hiring people, and purchasing raw materials. However, why does this money have to be in the form of capital and not borrowed?

In the past, there was a reform called 'allocation to loan conversion' where all government funding was converted into loans. However, after a period of time, it was discovered that this method was not effective as an enterprise cannot rely solely on loans to finance its assets. After the 'allocation to loan conversion' period, there was a new reform called 'debt-to-equity swap'.

Regardless of whether an enterprise is a state-owned or private enterprise, it is essential to have its own capital. This capital is used to deal with uncertainties in the market. Once the capital is invested, it cannot be withdrawn. If the investment generates a return, the return is distributed accordingly. If there is no return, it is considered a loss. This is what is known as capital, and it was invented by humans to deal with market uncertainties.