Choosing Debt or Equity Financing for a Business
Do you want to expand or start a new small business? Many people face the dilemma of whether to get investors or a loan. However, it is crucial to consider various factors such as how easy it is to get the funds, the process, the paperwork required such as legal help, the risk involved, and the cost.
How to Get Debt Financing
Getting a loan for your business or debt financing is a common financing type for small businesses, especially beginners.
Factors to Consider
Ease of Getting the Business Loan
Although it’s not easy to get funds for a new business, debt financing as a business loan is typically quick and straightforward. This process starts with preparing a business plan and financial statements then taking them to lenders. Although you can formulate these documents by yourself, you need to consult a financial expert.
Business Control
When you obtain a loan, your lender has nearly no control over your company. Although they may regularly request statements to ensure your business appears stable, you need to remain in total control in decision-making.
Cost of Business Loans
Debt financing cost comes as interest payments. Since business loans are risky, they may have higher interest rates. However, this is subject to your operation duration, credit rating, and the type of your lender.
Risk of Business Loans
Failure to pay the loan’s bill may force the lender to call it in. Therefore, you may need to pay it back. Failure to repay the loan may negatively affect your business credit rating.
How to Obtain Equity Financing
Getting equity financing depends on the type of funding. Equity financing may be either through private or public investors.
Factors to Consider
Whether public or private, equity financing involves giving up control of your business operations since the investors aim to guarantee its success.
Ease of Getting Equity Funding
If you opt for private investors, it’s fairly easy to get them, especially family or friends. However, it may be hard to convince capitalists or other investors to invest in your business.
Risk of Equity Financing
Since investing in a company is risky, the investors need to know that they may not get their investment back if the business goes bankrupt or closes.
Therefore, as a business owner, you need to pay attention to the type of financing favoring your business. This may significantly help you in guaranteeing the business’ future success. If you want to finance your business, contact Advanced Commercial Capital LLC for more information.
