Financial Product Definitions

In the first few months of running your startup, you may encounter some terms that you are either unfamiliar with or do not completely understand. All of these terms refer to specific financial products. To use a dictionary definition, a financial product is defined as follows:

Financial product (n.): A product that is connected with the way in which you manage and use your money

In other words, financial products are tools that help you with any financial dealings. You use financial products to save and grow money, obtain borrowed money or to get insurance coverage. Financial products are essential to managing your startup’s finances and for funding your startup. For that purpose we distinguish financial products into three high level categories: grants, loans and equity.

Grants, simply put, are funds provided by governments. They usually do not have to be repaid but generally come with “strings attached,” and must often be used for a specific project or purpose. There are a range of government grants available to startup businesses. Mostly they are now distributed via Startup SG, so check out if you are eligible.

Loans are funds usually obtained from a bank, the government or other financial institution. However nowadays a lot of hybrids exist, like peer-to-peer platforms where you can get a loan from private investors or other companies. As a startup, it may be challenging to obtain a loan for funding your startup, but startup and small business loans designed for new businesses could be viable options. Singapore has a lot of government assisted schemes which you can apply for via your regular business bank. However, it’s important to consider the interest charged and whether your business can shoulder the debt repayment burden.

Equity, on the other hand, involves selling a part of your business—an equity stake—in exchange for an agreed amount of finance. Unlike a loan, repayment is not required. Important sources of equity financing will include angel investors and venture capital firms, both of which invest in new startup companies. Quite many entrepreneurs especially in Singapore try to raise equity funding from investors and prefer this above getting a loan or applying for a grant to avoid the interest payments or having to adhere to the grant criteria. Do however never forget, no type of funding is free, neither is equity funding. If you like to stay in full control of your startup keep this in consideration and if you do get investors in, look for what else they can bring to the table like knowledge, network, experience, etcetera.

Grants, loans and equity are all financial products instrumental to providing the funding a startup needs to thrive and grow. The Investeur–  Golden Egg Check funding analysis platform can help you find investors and determine the appropriate methods for funding your startup.