FINANCING THE START-

UP
Presented by
Jamaica Business Development Corporation
FACTORS TO CONSIDER WHEN
SEEKING FINANCING
 Is it short term or long term financing
 How quickly will you be able to pay back the loan
or provide return on their investment?
 Is the money for operating expenses or for capital
expenditures?
 Do you need a lump sum or smaller amount over
several months ?
•Will you assume all the risk, or do you want
someone to share the risk?
TYPES OF FINANCING

 Two main types of Business Financing

➢Debt
➢Equity
 Alternative types of Business Financing
 Crowd Financing
Grants
DEBT FINANCING

 When a firm raises money for working capital or capital

expenditures by selling bonds, bills, or notes to individual and/or
institutional investors. In return for lending the money, the
individuals or institutions become creditors and receive a
promise that the principal and interest on the debt will be
repaid.
TYPES OF DEBT FINANCING

 Loans
➢Demand loans
➢Term Loans
➢Lease Financing
 Lines of Credit
➢Overdraft
 Credit Card
 Private Lending
DEMAND LOANS

 A demand loan is a loan that a lender can require to be

repaid in full at any time. This condition is understood by
the lender and the borrower from the outset. ... Borrowers
like the convenience and flexibility associated with demand
loans because they can repay them in full or in part at any
time, without penalty.
 These are short term loans
TERM LOANS

 A term loan provides borrowers with a lump sum of cash

upfront in exchange for specific borrowing terms.
Borrowers agree to pay their lenders a fixed amount over a
certain repayment schedule with either a fixed or floating
interest rate.
 These are long term loans
LINES OF CREDIT

 A line of credit is a flexible loan from a financial

institution that consists of a defined amount of money that
you can access as needed and repay either immediately or
over time. Interest is charged on a line of credit as soon as
money is borrowed.
OVERDRAFT

 Overdraft facility is a financial facility or instrument that

enables you to withdraw money from your bank
account (savings or current), even if you do not have any
account balance.. ... You typically have to pay a fixed
interest rate to avail an overdraft limit.
CREDIT CARD

 A credit card is a type of payment card in which charges

are made against a line of credit instead of the account
holder's cash deposits. When someone uses a credit card
to make a purchase, that person's account accrues a
balance that must be paid off each month.
PRIVATE LENDING

 Private lending happens when a private individual (not a

bank) loans money to a borrower, with the loan being
secured against real estate. The vast majority of private
lending is done between passive investors and real estate
investor
ADVANTAGES OF DEBT
FINANCING
 Maintain Ownership and control own destiny
 Lenders do not share the profit
DISADVANTAGES OF DEBT
FINANCING
 Loan Repayment
 High Interest Rates
 Impacts your Credit Rating
 Loss of personal assets used as Collateral
 Risk of bankruptcy
WHEN TO USE DEBT FINANCING

 Invest in variable cost

 Growing and mature business
EQUITY FINANCING

 You sell partial ownership of your company in exchange for cash.

The investors assume all (or most) of the risk--if the company
fails, they lose their money. But if it succeeds, they typically
make much greater return on their investment than interest
rates. In other words, equity financing is far more expensive if
your company is successful, but far less expensive if it isn't.
TYPES OF EQUITY FINANCING

 Self Funding
 Angel Investor
 Venture Capital
 Stock market
SELF FUNDING

 Provide the money for (a project or course of action)

oneself.
ANGEL INVESTORS

 Angel investors are wealthy private investors focused on

financing small business ventures in exchange for
equity. Unlike a venture capital firm that uses an
investment fund, angels use their own net worth. ... Angel
investors fund businesses in many industries.
VENTURE CAPITAL

 Venture capital (VC) is a form of private equity and a

type of financing that investors provide to startup
companies and small businesses that are believed to
have long-term growth potential. Venture capital generally
comes from well-off investors, investment banks, and any
other financial institutions.
STOCK MARKET

 The stock market lets buyers and sellers negotiate

prices and make trades. ... Companies list shares of their
stock on an exchange through a process called an initial
public offering, or IPO. Investors purchase those shares,
which allows the company to raise money to grow its
business.
ADVANTAGES OF EQUITY
FINANCING
 Proceed without the burden of debt on your back
 Understanding/acceptance from investors
 Valuable business expertise not possess by owner.
DISADVANTAGES OF EQUITY
FINANCING
 Investor own a part of the business
 Investors expects a share of the profit
 Open to lawsuits
 Public trading increases administrative and accounting
overheads
WHEN TO USE EQUITY

 Early stage of the business

 Limited cash flow
 Irregular Cash flow
WHICH IS BEST
DEBT OF EQUITY FINANCING
 It depends on the situation such as:
➢Your financial capital and potential investors
➢Type of business you plan to start
➢Business goals and the extent of control managers would like to
maintain.
➢Credit standing,
➢Business plan,
➢Tax situation including that of your investors,
 Make your decision wisely!
CROWD FUNDING

 What Is crowdfunding and how does it work? Crowdfunding

is the use of small amounts of capital from a large
number of individuals to finance a new business
venture. Depending on the type of crowdfunding, investors
either donate money altruistically or get rewards such as
equity in the company that raised the money.
HOW DOES CROWD FUNDING
WORK
 Crowdfunding is a way of raising money to finance
projects and businesses. It enables fundraisers to collect
money from a large number of people via online platforms.
Crowdfunding is most often used by startup companies or
growing businesses as a way of accessing alternative
funds.
GRANTS

A grant is a fund given by an entity – often a public body,

charitable foundation, or a specialised grant-making
institution – to an individual or another entity for a specific
purpose linked to public benefit. Unlike loans, grants are not
to be paid back
QUESTIONS

 Questions