There are different ways you can get money for your business, and some of the best options are debt and equity financing. Debt financing is a loan – you borrow money from a lender and repay it plus the interest within the stipulated period, which constitutes the cost of the loan. Equity financing involves selling the company shares to investors, who are then entitled to a portion of the profits made.

Types of Debt Financing

Traditional Bank Loans

They come at lower interest rates than alternative lenders, but they take longer to be processed.

Credit Lines

You get a lump sum, but you only withdraw the money when the need arises.

SBA Loans

These are government-backed financing for small businesses.

Merchant Cash Advances

You get these loans from alternative lenders and repay them from your credit and debit card sales.

Pros and Cons of Debt Financing

Pros

Detailed and transparent loan terms
The lender is not involved in your company’s decision-making.
It saves you money through deductions from your taxable income.

Cons

Paying the principal plus the interest can be costly.
Repayments typically start one month after you have been funded.
Defaulting can lead to substantial financial losses and put your credit rating, property, and investments at high risk.

Types of Equity Financing

Angel Investors

These are wealthy individuals who inject a significant amount of money into a company to get shares in the business or convertible debt for the money they give.

Equity Crowdfunding

This is where you use crowdfunding platforms to sell a small portion of the company’s shares to many investors.

Venture Capitalists

These are individuals or groups who put their money into companies, especially highly risky startups.

Pros and Cons of Equity Financing

Pros

Higher growth potential – rapid upscaling is an easy target for many companies that use this type of funding.
An ideal option for startups in high-growth industries.
Repayment starts once the company starts making profits.

Cons

Getting equity funding can be challenging if you do not have relevant personal networks and an appealing business plan.
The investors become part of the decision-making team because they have put their money into the company.

Getting funding for your company through debt or equity financing can benefit your company, depending on how you approach either of them. Talk to Navigate Firm today and get the financial help you need for your business.