Equity or Debt Financing- Which One Is Your Next Business Partner (Financially)
Jessica Rodz October 26, 2021
Funding your business can be a wonderful gain too. If only you know the correct way to do it. You have got two contradictory funding plans knocking at your door. They are equity financing and debt financing. Both have their plus sides. Both have their disadvantages. You have to let only one in. What would you do? Just read this blog. Equity and debt financing are individual funding ideas that have the possibility to make a business grow like nothing before. Investments sometimes work as a blessing to any kind of task, be it buying that new Smartphone you have been eyeing for a while or making a long-term investment to help your business discover the more probable side of commerce and increased revenue. So, investment or funding isn’t always bad. And you need to make it happen to provide your business with stability, income, and constant growth. This blog pinned down some of the really interesting ideas on both equity and debt financing. Read about them and find out which one of them do you want.
  • Equity vs. Debt Financing: The Battle of the Funding Options

When financing a business, most entrepreneurs tend to offer money from their own savings. That happens for everybody in the inception phase of the business. But, eventually, it is quite an impossible task for a single person to invest all of the money for a brand.  That is why many entrepreneurs (at the beginning of their journey) are inclined to stick to a guaranteed same-day loan or a personal loan to get immediate financial aid. This can be the plainest definition of debt financing. However, it has also been found that businesses that have grown to a significant level often consider selling a part of their stock or share to other investors or shareholders. If they do this, then they’re going the equity financing way. Had a rough idea about them, right? Well, here’s more and that too specifically.
  • Why Do You Need Debt Financing?

First, understand what debt financing is. Debt financing is when you borrow money from any financial institution or professional lender. But, you shouldn’t miss a piece of vital information. Debt financing is a commercial term, and that you take a loan for debt financing your brand as a business. So, debt financing encompasses a larger commercial meaning. Debt financing is taken when you want to provide good investments for your business with various goals in mind. It is also taken when your business needs a working capital raise or backup for capital expenditure. Here’s why you need it.
  • To Access Complete Control of the Company

When you’re choosing debt financing over equity financing, you are not compromising with the company shares and stocks. As a matter of fact, compromising the stocks may land you losing or sharing part of the authority you have on your company. If you consider debt financing, you keep stocks out of the scene and comfortably deal with business growth.
  • To Get Instant Assistance

Equity financing is certainly a good and healthy way to grow your business. But, one great downside of equity financing is that it can either be lengthy or uncertain. Some many meetings and proposals are to take place (and you may lose a week or two or a few days), and still, you might not know if you’re going to get the funding. With debt financing, you really don’t need to wait for that long. You can get an instant solution, sometimes within hours, to fund your business. This faster processing time allows you to recover multiple debts in a snap. If that is the case, then look for unsecured debt consolidation loans from authorized lenders. This special type of loan will take care of all your debts at once, and the professional lender might also involve him or herself in the process if need be.
  • To Gain the Scope of Saving from Tax

Some particular types of debt financing come with the facility of interest deduction. Yes, you are eligible for tax advantages on some specific kinds of loans where you might be allowed to deduct the interest rates of your loans. As a result, you get to save extra money in your pockets.
  • Why Do You Need Equity Financing?

Equity financing is one of the greatest ways to finance your business. But you need to put lots of effort to get that. Once that is done, you don’t need to worry anymore about revenues. Equity financing is basically exchanging the ownership of the company partially to gain funds either to pay bills or to make investments. You can talk to professional investors or Angel investors who are willing to own a part of your company’s stocks or share and get eligible to gain a percentage of the company profits. It is like an investor takes a share of your company in exchange for some thousand pounds. If that results in a total of 6% of the ownership, you are making that investor access and own 6% of the company profit. It has its particular advantages. Here they are:
  • To Gain More Industry Insights and collaborate with a Pro

Sometimes you need an entrepreneur or a person adept in business to help you out. Plus, there’s a gain of money involved in it. This is one of the greatest advantages of equity financing.  With experienced investors, you gain the privilege of business collaboration with another pro that certainly contributes more to the business you’re doing. As they say, two heads are always better than one.
  • Not to Get Penalised

Loans aren’t bad. But, if you fail to pay them off at the right time, then you might find yourself in problems that require your attention. Failing to meet your business transactions regarding the repayment of a loan can also affect your credit score and make it go low. As an entrepreneur (or as anyone), you don’t need that. With Equity financing, you gain money by selling a particular share of your company. In that regard, there is no question of any penalty or repayment options.
  • Not to Affect Your Credit Score

As mentioned earlier, a credit score is vital for your business. Try to keep it high and ‘working’ all the time. But, the question of credit score comes into the picture when you’re taking loans. Equity financing does not even involve credit scores. It can be observed as more of a commercial tie-up rather than a financial exchange. Of course, money is involved in the process. Although a bad credit score can be easily managed by a bad credit loan online, you can still keep it aside and focus more on your future business goals with the money you earn from your investors.
  • To Conclude: You Need to Know What You Want

The true thing about financing is that you need to know which one you want and why you want it. While debt financing is a great way to earn quick financial aid and keep the complete ownership of the company all to yourself, equity financing can be looked upon as a progressive partnership to explore new horizons for your business. However, it is you who will make the decision. Do what’s necessary for your brand. It is because you are the boss of it, and you will always be.