This article “Understanding Life Cycle Financing- What an entrepreneur should know”

is written sequel to my earlier hub “Financing Entrepreneurial Ventures—What an Entrepreneur needs to know”

As an entrepreneur, one of the major challenges is financing, and when you are considering equity financing, it is imperative for you to consider what can be called the financial life cycle of businesses. Due consideration is given to the fact that financial needs of a business will change as the business faces different challenges. Of course, over the course of the life of the business, financing needs will change. You, as an entrepreneur should be able to recognize where the business is in its life cycle and specify precisely the uses of these funds. This article will help to clarify and explain some of the life cycles to you with high simplicity

Early stage financing: There are two categories of early stage financing:

1. Seed capital:

A seed capital is the relatively small amount of money needed to prove that the concept is viable and to finance feasibility studies. It is not used to start the business, but to investigate its possibilities.

2. Start-up capital:

A start-up capital is the funds that actually get the business organized and operational. The start-up capital is also known as first-stage financing.

Expansion or development financing: This is the second stage and it consists of three categories of financing. The three categories are:

a. Second-stage financing which is the initial working capital needed to support the first commercial sale of products of the business.

This supports trade debtors, stocks, cash on hard, supplies, and expenses. At this point, however, t business may not have achieved a positive cash flow.

b. Third—stage financing is used to expand the business the break—even and positive cash flow levels. This is why it is called expansion financing.

c. Fourth stage financing, sometimes known as ‘mezzanine financing.