how undercapitalization works
being undercapitalized is a trait most often found in young companies that do not adequately anticipate the initial costs associated with getting a business up and running being undercapitalized can lead to a significant drag on growth as the company may not have the resources required for expansion leading to the eventual failure of the company undercapitalization can also occur in large companies that take on significant amounts of debt and suffer from poor operating conditions if undercapitalization is caught early enough and if a company has sufficient cash flows it can replenish its coffers by selling shares issuing debt or obtaining a long term revolving credit arrangement with a lender however if a company is unable to produce net positive cash flow or access any forms of financing it is likely to go bankrupt undercapitalization can have a number of causes such as examples of undercapitalization in small business