Financing the Start-up

Presented by
Jamaica Business Development
Corporation
May 21,2015
 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
Real Estate Investment Trust (REIT)
 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
 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
• Customers consistent on time payment
• 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
• Friend & Family
• Angel Investor
• Venture Capital
• Stock market
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!
 Questions
• Questions