​There are two broad ways that people fund businesses  and their investments ie

​        i. Equity: This is the money that is put into a business to take risk with no assured return but the investor is looking at participating in the overall profitability of the business.  Some of the key sources of these are personal Savings and Investments, Friends and relatives, Angel investors through various platform including but not limited to crowdfunding, Private and Public share sales.

​       ii. Debt: These are the loans to the business which have a pre-agreed cost depending on the other terms and conditions. The funds here can be sourced from both formal businesses like banks and saccos and they can be from more informal means like supplier credit.

​ When thinking about the wealth creation journey one cannot ignore debt as it is one way if used well can help multiply the overall value of an individual’s portfolio. The key thing to get right when taking debt is understanding the venture, we are undertaking to ensure it can sustain the cost of debt in terms of both overall return and also cashflows from the said business.

​When seeking debt below are some of the key considerations that one needs to put into place:

​        i. Business Type: Some sectors attract more debt funding compared to others let us take an example if you in real estate you are able to raise up to 60% of the capital required from debt but where as  in sectors which changes fast like technology the ability to attract debt might be limited. One should therefore seek to understand the key players who can fund their various types of ventures.

​       ii. Understand the available options and products in the market. One can start by looking at any cheaper options that would include subsidized loans through the various business agencies before jumping dip into commercial loans. Even for the commercial loans knowing the various types of facilities offered by various banks helps in making the right decision.

​     iii. Business stage: Businesses go through the various maturity stages and it is good to know what kind of funding works at each stage. When you are starting out most of the funding comes in form of equity and most investors who lend money here would like a participation of equity as they are taking more risk. Being able to balance between seeding control and the need to get funding is the driving force here.  

​     iv. Amount of cash required and the time horizon of when the cash is needed: Knowing the value of the cash required and for how long the cash will be required helps in narrowing one’s options on the facilities that they can approach the financiers to give. It is always good to ensure that we are matching the cashflows in terms of both amounts and timing. For short-term working capital one can consider overdraft facilities but for cash intensive long-term projects one should go for longer term loans;

​       v. Team’s capacity: Financing is a key pillar of any business and it is for this reason that one might not fully outsource this skill out of the business. When one is getting into complex transactions it is always advisable to call in the help of professionals as this will not only help in identification of potential challenges but they also help with the negotiation process with the counter parties.

​While debt is all good and one should always aim at getting it all right, below are some of the key mistakes we should try avoid at all times.

1. ​Taking debt to speculate on a new ventures: Debt should be used for business expansion and never for speculating on new venture unless it is a friendly debt from the close cycle of friends. When things do not work out you still have the debt to pay
2. ​Not creating boundaries between personal and business debts:
3. ​ For most entrepreneurs there is usually a challenge in separating this two and one confuses the business having money with them having the cash. Always good to create different accounts in business as suggested in the profit first book.
4. ​Delayed debt servicing: When we miss any payment, we get ourselves into significant challenges as catching up with the repayments may be a big challenge
5. ​Too Much leverage: The same way that  we might not borrow ourselves out of recession as a country even as an businesses and individuals, debt can be suffocating and so one needs to work on key debt targets to ensure that we keep ourselves in check
6. ​Taking the wrong debt and/or with the wrong partners: Businesses is about building strong relationships. It is therefore important that one cultivates the relationships that shall help point them to the right direction. As one gets debt for their business and investments cashflow matches plays a key role and should never be ignored.

​ Using debt to grow your business is good and there are people who have done this successful like the Nike brand was built on debt- read the Shoe Dog gives the roller-coaster one gets when building business using debt- but if well used the outcome works.