Entrepreneurs everywhere finance their small or medium-sized ventures more or less the same way. First, they will tap into their personal funds or resources, including building up balances on their credit cards. Next, they may obtain loans from family and friends. All along, they may be benefiting from a secured or unsecured overdraft from their commercial bank. The latter relationship may eventually be converted a 1-3 year collateralised commercial loan agreement. Typical collateral may consist of a mortgage on property or a lien on a vehicle, backed up by the borrower's personal guarantee. Sooner than later, their fledgling business is financed by a preponderance of debt.
According to a reliable source at the Small Business Association (SBA) in the United States, by their third year, sixty per cent of start-ups are being financed by 60-70 per cent debt. Some persons within the small and medium-sized business (SME) sector in Jamaica with whom I have spoken support my suspicion that the debt picture may even be worse here.
FROM DEBT TO EQUITY FINANCING: THE COMING OF AGE OF AN ENTREPRENEUR