You already know that it takes more than a stellar business plan and an ace team for your startup to thrive. You also need financing to get your ideas off the ground. COLD. HARD. CASH.
But what type of financing is available for me, you ask? Well, you have 3 options:
1. DEBT FINANCING
Your company receives a loan and gives its promise to repay the loan. It includes both secured and unsecured loans, and can be long-term or short-term.
Pros: You aren’t giving away any part of your business.
Cons: Defaulting on the loan = signing your life away.
2. EQUITY FINANCING
Your company obtains finances from potential investors, family and friends, business angels or by issuing an Initial Public Offer (IPO).
Pros: You are not obligated to pay a dividend
Cons: Equity finance generates capital from external investors in return for a share of the business.
3. MEZZANINE FINANCING
This is a combination of both debt and equity financing. It begins as debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. This type of financing allows the owner both debt and equity options.
Pros: Allows you to get the money you need without giving up a huge chunk of your company’s ownerships…as long as you pay your debt on time.
Cons: Interest rates are much higher than traditional debt financing.
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9 thoughts on “Quick Read: Your 1 minute guide to startup financing”
Simple break down. Very helpful.
Can we get some advice on where to find these investors?
I also would like to know where to find these investors. I feel like they only want to work with you once you have an established business but what about us who are just starting out
I’m looking at debt financing for my business but the interest rates are very high here in Nigeria. I wish the banks would support more young entrepreneurs to make it easier for them to grow
Nice one – thanks for sharing
I’ve never head of mezzanine before. Not sure if this is one that local investors are using
I wish there were more places to learn about these things because trying to identify the funding options has been very challenging for me
I’ve been looking into grants and competitions as another way to finance my business. Sometimes applying for these different programs can be a little bit distracting but at least I know that I own my company and nobody else. I’m nervous that if I brought on an outside investor or got a loan from a bank then they may not understand my vision for the company and could ruin it. I’m not ready to take that type of risk just yet so I will grow slowly and find money where I can
I would like to get more research on equity financing and finding the right investors. I’m not sure how to find these people and approach them. She Leads Africa, please do you have any investors I can speak to for a fashion business in Kenya?