- WHICH FORMS OF FINANCING EXIST?
THERE ARE GENERALLY THREE FORMS OF FINANCING:
- GRANT
- DEBT FINANCING
- EQUITY FINANCING
Ad1) DEFINITION OF GRANT
A grant is a fund given by a person or organization, often a public body, charitable foundation, a specialised grant-making institution, or in some cases a business with a corporate social responsibility mission, to an individual or another entity, usually, a non-profit organisation, sometimes a business or a local government body, for a specific purpose linked to public benefit. (BY COURTESY OF WIKIPEDIA)
UNLIKE A LOAN, A GRANT DOES NOT INCLUDE THE OBLIGATION TO PAY IT BACK. SO, IF YOU ARE LUCKY TO GET A GRANT TO LAUNCH YOUR OWN BUSINESS, KEEP TO THE CONDITIONS OF THE GRANT AND BE HAPPY. ALL YOU NEED TO DO IS TO MANAGE YOUR BUSINESS SUCCESSFULLY. BUT THAT IS A SUBJECT FOR A DIFFERENT COURSE…
Ad 2: DEFINITION OF DEBT FINANCING
Debt financing occurs when a company raises money by selling debt instruments, most commonly in the form of bank loans or bonds.
WHERE DEBT IS A SUM OF MONEY OWED OR DUE.
WHEN YOU SEE THIS DEFINITION, YOU WILL REALISE THAT FOR YOU AS A SMALL OR MICRO START-UP, THE ONLY PART OF THIS DEFINITION THAT APPLIES TO YOU ARE THE BANK LOANS. DON’T WORRY IF YOU SEE THE WORD “COMPANY” IN THE DEFINITION. WHETHER YOUR BUSINESS IS PART OF A COMPANY YOU HAVE REGISTERED WITH THE REGISTRAR GENERAL (MORE ABOUT THAT IN A DIFFERENT COURSE “BUSINESS MANAGEMENT”), OR YOU OWN THE BUSINESS AS A SINGLE PERSON (SELF-PROPRIETORSHIP) OR TOGETHER WITH OTHERS (PARTNERSHIP), YOU WILL USUALLY FACE THE SAME ISSUE: YOU HAVE TO GO TO THE BANK. MORE ABOUT DEBT FINANCING IN THE NEXT LESSON.
AD 3: DEFINITION OF EQUITY FINANCING
Equity financing refers to the sale of company shares in order to raise capital. Investors who purchase the shares are also purchasing ownership rights to the company. Equity financing can refer to the sale of all equity instruments, such as common stock, preferred shares, share warrants, etc.
WHERE EQUITY IS THE VALUE OF THE SHARES ISSUED BY A COMPANY.
HERE WE MUST BE CAREFUL. THIS DEFINITION MAINLY REFERS TO EQUITY OF A COMPANY LISTED ON A STOCK EXCHANGE (E.G., THE GHANA STOCK EXCHANGE – GSE). HOWEVER, IF YOU LAUNCH A BUSINESS AS SINGLE OWNER (SELF-PROPRIETORSHIP), THE BUSINESS IS EQUITY. THE SAME REFERS TO A BUSINESS PARTNERSHIP, IN WHICH EACH OF THE PARTNERS OWNS A PART OF THE EQUITY. THIS IS IMPORTANT WHEN WE DIG INTO EQUITY FINANCING IN ONE OF THE FOLLOWING LESSONS.
- QUESTIONS
- IN YOUR OWN WORDS: WHAT IS A GRANT?
- IN YOUR OWN WORDS: WHAT IS DEBT FINANCING?
- IN YOR OWN WORDS: WHAT IS EQUITY?
- IN YOUR OWN WORDS: WHAT IS EQUITY FINANCING?
TRY TO ANSWER THE QUESTIONS WITHOUT LOOKING AT THE TEXT.
THE NEXT LESSON WILL FOLLOW IN A FEW DAYS.
