Assessing The Merits And Demerits Of Debt Or Equity Finance

The success of your startup depends on your capability to secure the right kind of financing. There are different sources of capital and entrepreneurs are always torn between debt and equity financing options. Choosing between lender loans and offering shares in your business can leave you stressed out. In some situations, entrepreneurs will opt for either options or they will go for a combination of debt and equity financing. You need to factor in critical aspects when determining capital sources, but you need to know the pros and cons of debt and equity structures up front.

Apparently, choosing debt or equity finance depends on what is readily available and the factors affecting business cash flow. Also, business owners will go for either option depending on how they perceive property and decisions making priorities. If you choose equity financing; you are not pressed to repay as soon as possible compared to the debt alternative. As an entrepreneur, your goals is to see the business growing such that you can offer the investor a share of your returns.

However, there is no pressure for installments or interest rates that come with a debt finance arrangement. When you choose equity financing, there is a possibility that the money generated goes into growth and expensing since there is no pressure to pay up fast. Apart from the flexibility that equity offers an entrepreneur, partnering with angel investors will be in a position to offer useful guidance needed to propel the business forward. Also, investors will be pooling their money with you and sharing the risk in contrast to a bank that pressures you if you default. Entrepreneurs who skip equity for the debt option have their benefits to reap.
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Choosing debt financing sounds intimidating, but the good thing is that you can get a loan to do any business irrespective of its nature or magnitude. If you choose debt; you have the prerogative to pick a lender from a wide berth of institutions including mainstream and alternative lenders. If you have a credit score that isn't impressive, you don't have to worry about getting loans since alternative lenders are willing to approve you. Even though you can get loans with bad credit or without collateral, you need to check out the interest rates, and you can move to a different lender if the rates are repulsive.
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If you took the debt alternative, ownership lies with you and you can make your decisions at will. It's good to note that you and your lender part ways as soon as you repay the last installment. You will enjoy tax relief since interest on loans is tax deductible. When you get capital under a debt financing method, you will have no problems as long as you have a focused repayment plan. If you want money in a hurry, debt financing is the way to go.