IndexIntroductionA Model of Entrepreneurial FinanceEntrepreneurial Finance in KenyaDebt and CapitalDebt FinancingAdvantages of DebtDisadvantages of DebtCapitalAdvantages of CapitalDisadvantages of CapitalConclusionIntroductionEntrepreneurs brainstorm and launch their ventures with the primary objective of making them prosperous and progressive. However, one of the determining factors of the success of any business is entrepreneurial finance which incorporates a couple of factors and aspects. In business studies, “entrepreneurial finance” refers to the application and adaptation of various financial techniques and tools to the operations, financing, evaluation and planning of an entrepreneurial venture. Therefore, entrepreneurial finance can be simplified as the set of finances and financial practices involved in running a private business. Consequently, the study of entrepreneurial finance can be contrasted with corporate finance, which focuses on critical principles such as risk analysis, financial objectives aimed at increasing the value of the company, assets, liabilities, privacy, negotiation and overall business management. In other words, entrepreneurial finance is a broad topic that can be deeply empowered through debt and equity. However, using typical examples, this article provides an in-depth argument to explore how debt and equity can be used to obtain entrepreneurial financing. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original EssayA Model of Entrepreneurial FinanceFollowing the growing demand for financing in the corporate world, most economies around the world have offered different options and methods to not only build capital in the business, but also maximize existing capital. More importantly, managing economies of scale is one of the most popular methods to increase business performance and generate more capital. However, it is argued that business growth is directly proportional to entrepreneurial finance. This means that the more financing, the faster the business will grow. Therefore, each capitalist has different development goals that can be achieved at different stages of the business life cycle. The path to a successful business is complicated mainly due to risks and other complexities. For example, most capitalists are motivated by lifestyle factors, which lead to external finances. Others face significant crises as they ignore the present factor to focus on future growth plans that require heavy financing. Each of these phases has different funding sources and needs. For example, it is essential to point out that most businesses and entrepreneurs go through the same cycle when it comes to entrepreneurial financing. First, the entrepreneur invests his own savings, together with family/friends' assets, to finance or manage the business in the development stages. Secondly, the next funding will come from Angels and potentially from Venture Capitalists. Furthermore, the third financing is typically the largest and comes from large bank loans and venture capitalists as the business is now large. Fraser, Bhaumik, and Wright (2015) argue that many economies have seen significant declines in both debt and equity. financial flows to SMEs. As a result, there are concerns that the associated funding gap could limit business growth and, in turn, hinder economic recovery. They have shown that both the developing economiesdevelopment that developed ones have suffered from these challenges, but the UK, in particular, has shown serious structural problems in the markets for both alternative sources of finance such as entrepreneurial capital and traditional bank credit. Furthermore, the UK government has established a British Business Bank, modeled on the German state bank Kreditanstalt für Weideraubau (KfW), to help improve debt/equity financing flows to SMEs. Likewise, thisA similar approach has been tested and used here in Kenya through various financial products or for example, the issue of financing gap in the country, in the provision of debt and equity capital, has been a persistent constraint to small business development . Entrepreneurial Finance in Kenya Small businesses and start-ups have become an increasingly important component of economic development in Kenya. The Kenyan Government through the Ministry of Finance and Small and Medium Enterprises has collaborated and identified these gaps in the provision of small scale equity investments from which unique financial products such as the Uwezo Fund, Youth Fund and others have been introduced. Although these products have faced serious complications, considerable progress has been made in enhancing entrepreneurial finance across the country (Cumming, 2012). Another primary source of venture capital in Kenya is microfinance financial institutions (MFIs) which have been in existence for over three decades. Some of the leading microfinance institutions include the Kenya Women Finance Trust (KWFT), which has played a significant role in empowering women and businesses. However, recent studies have confirmed that although various tools and players have been present in the markets for a while, starting and running a business in Kenya continues to represent a major challenge for many people. According to a study conducted by FSD Kenya (2016), many Kenyan entrepreneurs and investors have almost similar financial problems in their businesses. In many cases, banks have played an important role in enabling the entrepreneur to achieve business success (FSD Kenya, 2016). However, many of those interviewed by FSD have experienced moments in their development journey where banks have been unable to provide them with the necessary financing, forcing them to look elsewhere for funding and support. Entrepreneurs believe that banks need to make changes to improve SME financing. These suggestions are summarized, along with additional recommendations explored by the researchers that emerged from the study. For this reason, economists and business analysts have identified alternative financing options that are simple, convenient, reliable and safe. The three main alternative financing options available to most Kenyan startups include Bitcoin-based small business loans, Africa-focused crowdfunding, and peer-to-peer microfinance loans. It is essential to mention that some of these products are very new on the market and therefore need more in-depth conceptual and practical studies to demonstrate their reliability and conditions of use. While startups and venture capital funding are often linked in the public eye, bank loans are a more common source of funding for many entrepreneurial ventures. Both sources share some common characteristics. Because entrepreneurial ventures are generally small and have a high risk of failure, both venture capital and bank loans require careful monitoring of borrowers. Both types of financing use covenants to limit borrower behavior and provide additional leveragecontrol in case the company achieves poor results. These constraints often limit the firm's ability to seek financing elsewhere, which ties into another common feature: the use of capital rationing through staggered financing and credit limits as a means of controlling the ability of borrowers to continue and grow your business. Despite these similarities, there are significant differences between these two types of financing. While banks lend to a wide variety of businesses, the businesses they finance with venture capital tend to have very unbalanced return distributions, with a high probability of weak or even negative returns and a small probability of extremely high returns. Debt and Equity Debt is less risky than equity, and so the institution's activities are less affected by private information about the firm, reducing adverse selection problems when the institution itself needs additional financing. Since these costs are passed on to the entrepreneur in the costs of funds, she shares this preference for otherwise equal debt. This simple picture is complicated by the fact that, even if it is optimal to keep the entrepreneur's venture alive, there may be additional choices to make. One of the most critical issues facing entrepreneurial firms is their ability to access capital (Denis, 2004). Since such businesses are typically not yet profitable and have no physical assets, debt financing is usually not an option. As a result, entrepreneurs tend to rely on three primary sources of external equity financing: venture capital funds, angel investors, and corporate investors. Venture capital funds refer to limited partnerships in which the managing partners invest on behalf of the limited partners. Companies invest on behalf of their shareholders, for financial and strategic reasons. The existence of multiple sources of financing raises the question of whether the source of financing matters to the entrepreneurial venture. This question is analogous to similar questions addressed in the corporate finance literature. For example, extensive research is devoted to studying the importance of the source of debt financing. This literature generally concludes that banks are “special” in that they provide services such as monitoring that are not provided by other claimants, while non-bank private debt plays a vital role in meeting the financing needs of low-credit-quality businesses. . Therefore, the debt-to-equity ratio is an important factor in entrepreneurial finance as it involves financing decisions. The existence of theory-based asymmetric information is used to understand market failure and examine the growing demand for financing. Overall, debt and equity sourcing involves complex processes that raise other considerations in financing decisions. It is important to remember that the most profitable businesses use minimal external financing, while fast-growing companies with higher financing needs are usually more likely to seek foreign funding. Interest payments on commercial loans are considered expenses. They are then deducted from the company's income taxes, so the ownership percentage is higher and the cost of the loan is reduced. Low Interest Rates: Due to tax deductions, your overall tax rate is lower. However, this win-win financial move allows both the lender and the business owner to enjoy a tax advantage after processing the.