The Biggest Funding Mistake Entrepreneurs Make

One of the biggest challenges facing entrepreneurs isn’t coming up with a great business idea. It’s figuring out how to pay for it.

Should you use your own savings? Apply for grants? Take out a loan? Bring in investors? Launch a crowdfunding campaign?

According to Shani Duncan Falconer, Senior Corporate Manager of the Group SME Resource Centre at JMMB, the answer depends largely on where a business is in its growth journey.

Speaking on Taking Stock with Kalilah Reynolds, Duncan Falconer described business financing as a “funding menu,” arguing that entrepreneurs should think carefully before selecting the type of funding they pursue.

“Just like a restaurant menu, funding isn’t a one-size-fits-all,” she explained. “You have to choose based on where you are and what your needs are right now.”

She warned that many entrepreneurs immediately turn to debt financing when it may not be the best fit for their stage of development.

“The menu kind of works as a framework because it helps you ask: What am I ready for? And what can I actually afford?” she said. “Just like a real menu, if you order the wrong thing, you’re going to end up paying dearly for it.”

Bootstrapping Is a Good Start — But Not Forever

Duncan Falconer said many successful Jamaican businesses began through bootstrapping, where entrepreneurs use their own savings and resources to get started.

“Bootstrapping is actually a powerful starting point because it allows you to stay in control and it allows you to stay lean,” she said.

However, she cautioned against relying on self-funding indefinitely.

“The danger is when you continue to bootstrap out of fear — fear of owing, fear of investors, fear of people owning your business,” she said.

“Bootstrapping is good to start, but it’s just a step on the ladder. It gets you off the ground, but you can’t stay on that ladder forever. At some point, you now have to go inside the building.”

Grants Are Underused

Duncan Falconer believes grants remain one of the most underutilized funding options available to Jamaican entrepreneurs.

“Grants are the most underused option in the SME space, and it’s a shame because that’s when real money is on the table,” she said.

She pointed to organizations such as the Development Bank of Jamaica, JAMPRO and the Caribbean Development Bank as examples of institutions that regularly offer grant programmes.

While grants do not require repayment, she stressed that they are far from free.

“It comes with accountability. It comes with reporting. It comes with deliverables and sometimes even audits. So you actually have to earn it,” she explained.

She also warned entrepreneurs to be wary of grant scams.

“If they’re telling you there’s a charge to access a government grant, walk away from that because that’s not how it should be,” she said.

Crowdfunding Can Raise More Than Money

Although crowdfunding remains relatively uncommon in Jamaica, Duncan Falconer said it can be particularly effective for businesses with strong cultural or emotional appeal.

“It works best when your product or story has a sort of emotional pull,” she said, citing Jamaican food brands, cultural products and tourism experiences as examples.

She noted that crowdfunding platforms such as GoFundMe, Kickstarter and Indiegogo can also help entrepreneurs build an audience and validate demand before launching a product.

“You’re not just raising money. You’re going to build an audience,” she said.

Debt vs Equity

One of the most important decisions entrepreneurs face is whether to raise debt or equity financing.

Duncan Falconer offered a simple distinction.

“Debt financing is you go into a bank or you go and you get money and you pay it back with interest,” she explained. “You keep ownership of your business, but you owe.”

Equity financing, on the other hand, involves selling a stake in the company to an investor.

“Somebody gives you money in exchange for a piece of your company,” she said. “You don’t have any monthly payments, but they now own a share of your future.”

While many entrepreneurs resist giving up ownership, she said the right investor can bring more than capital.

“The right investor brings expertise, networks and opens doors.”

Borrow to Grow, Not to Survive

Asked about the biggest financing mistake entrepreneurs make, Duncan Falconer pointed to one issue above all others: borrowing to cover day-to-day operations.

“The biggest mistake that they make is really borrowing to fund operations and not growth,” she said.

“If you’re using a loan to pay salaries every month and if you have a cash flow problem, that is not proper funding.”

She urged business owners to think carefully about whether debt is helping their businesses expand or simply delaying deeper problems.

“You have to make sure when you’re looking into debt financing, you ask the question: Is it something that’s going to build me or is it something that’s going to drown me?” she said.