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Undercapitalistion describes a condition where an entity or a business has inadequate cash or capital to carry out its usual operational activities. An undercapitalised business is not able to acquire forms of financing such as equity or debt. Such a situation is very common in small firms, but it may affect any business. In fact, undercapitalization can be considered as an alarm for a major financial danger for small businesses, as well as a significant reason of small business failure.

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