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What our members have to say...
"I would just like to thank you as I have successfully found the funding required. I could have actually funded my project 6 times over! I went with the Investor I felt most comfortable with and hope to build a mutually rewarding future with him!"
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SB - (Scotland) |
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Debt Financing For Your Business: The Pros & Cons
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We frequently put side by side ‘raising capital through debt’ and ‘raising capital through equity’. The key difference is, in equity you have to give up partial ownership of your company. However, in debt capital, you are allowed to continue your possession against interest and capital payments. However, there are many pros and cons associated with this method of financing.
The major harmful thing with debt capital is that here your money will come from banks or other lenders. Lenders like bank always look for low risk investments, which founding businesses cannot offer.
What do this mean for your business?
It is tough for start up businesses to be financed through debt, as they cannot gather the urgent interest expenses. If said clearly, if you have no income as your business has not started well, possibility of funded by a bank is very less.
However, there are many positive things in financing by debt capital.
Many entrepreneurs do not like to give up partial ownership of their company (the case with equity financing). Often entrepreneurs even do not want the authority of others in their company. That is why most entrepreneurs prefer debt financing than equity financing.
With a traditional loan or venture capital, the venture capitalist needs a return. This return usually comes in some form of acquisition of your company. However, with a debt capital, the bank would not pressurize you to meet a long time exit plan.
Often it is seen that many entrepreneurs miscalculate the work force required to receive equity funding. Moreover, with venture capital, detailed plans and presentations are required. To be funded you have to network extensively to find the best investor. If you are financed with debt instead of equity, you can certainly save some precious time and vigor of your.
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