IN THIS COURSE, WE HAVE FIRST OF ALL LEARNT THE DIFFERENCES BETWEEN DEBT FINANCING AND EQUITY FINANCING. THE MAIN WAY OF DEBT FINANCING OCCURS IF YOU TAKE A LOAN FROM A BANK, THE MAIN WAY OF EQUITY FINANCIN OCCURS IF YOU TAKE AN INVESTOR – WHETHER PASSIVE OR ACTIVE – AS A PARTNER INTO YOUR BUSINESS.
THERE ARE SEVERAL ORGANISATIONS IN GHANA APART FROM BANKS WHICH GIVE OUT LOW-INTEREST LOANS – OR EVEN GRANTS – MAINLY TO START-UP BUSSINESSES. ON THE OTHER HAND, THERE ARE ALSO ORGANISATIONS OF SO-CALLED “ANGEL INVESTORS” THAT WOULD INVEST IN SMALL AND MEDIUM ENTERPRISES, ALSO FOR START-UP BUSINESSES.
THERE ARE ADVANTAGES AND DISAVANTAGES FOR BOTH FORMS OF FINANCING. ONE ADVANTAGE OF DEBT FINANCING IS THAT IS THAT IT IS MORE SHORT TERM THAN EQUITY FINANCING, ONE DISADVANTAGE – ESPECIALLY IN GHANA – IS A HIGH INTEREST RATE FOR LOANS. ONE ADVANTAGE OF EQUITY FINANCING IS THAT YOU DOM’T NEED TO PAY ANT INTEREST, AND THE RISK IS SHARED. ONE DISADVANTAGE IS THAT YOU GIVE AWAY PART OF YOUR BUSINESS, AS LONG AS THE BUSINESS EXISTS.
AT THE LONG RUN, WHETHER YOU PREFER DEBT FINANCING OR EQUITY FINANCING DEPENDS ON THE NATURE OF YOUR BUSINESS, AND ESPECIALLY ON YOUR OWN RISK PROFILE. WHETHER YOU ARE READY TO TAKE A BIG RISK OR YOU ARE A LOW-RISK TAKER, ONE THING YOU MUST DO BY ALL MEANS: YOU MUST ANALYSE YOUR INTENDED BUSINESS, WHETHER AS OBJECTIVELY AS POSSIBLE THE BUSINESS WILL BE SUCCESSFUL.
