Finance: Where do you get it from?

In essence, there are two types of investment in businesses:

• Equity – share capital, which gives ownership rights
• Debt – borrowings, which involves repayment.

And there are only two sources:

• Your own money
• Other people’s money.

Let’s look at these in a matrix:

	EQUITY	DEBT
YOUR OWN MONEY	Advantages: No sharing of ownership Disadvantages: Limited resources; Investment cannot be repaid easily Source: Self	Advantages: Investment can be repaid; Alternative to equity, if cash need is short-term Disadvantages: Other investors are unlikely to allow your loan to be repaid before theirs; Exposes additional funds to risk Sources: Self
OTHER PEOPLE'S MONEY	Advantages: Interest not paid, though investor will look for capital gain instead; Greater resources; Can bring other benefits (management skills) as well as cash Disadvantages: Sharing of ownership; Greater accountability; Will probably look for very high return on investment; Difficult to obtain Sources: Family & friends; Venture capital funds; Business “angels”	Advantages: Flexibility – Can match borrowing to funding need; No sharing of ownership Disadvantages: Must be repaid; Interest must be paid; Business subject to loan terms Sources: Family & friends; Banks; State enterprise support agencies

Check out the various sources of finance in the Assistance section of the web-site:

• Equity
• Debt.

Another source, sometimes, is Grants.