Every small business owner at some point will require financing, either for normal business operations or to enhance the business and achieve growth. When this kind of funding is needed, there are two basic categories of funding available to a small business owner, those being debt financing and equity financing. Each of these two approaches has its own advantages and disadvantages, so you have to consider which is most beneficial to your small business before you choose one or the other.
Equity Financing
Many startups use equity financing to secure funding for their companies, but this doesn’t mean that equity financing is limited to startups only. In this form of funding, cash is paid by investors into a business, and in return for that cash, investors would typically receive some percentage of the business itself. This percentage would be proportional to the amount of the investment so that a huge investment would call for a relatively large percentage of ownership in the company. The obvious drawback to this form of financing is that as a business owner, you would relinquish some portion of ownership of the company, and that means you would no longer be the sole influence on company direction.
Debt Financing
You may not have heard this term before, but you’re certainly familiar with the process. Debt financing simply involves securing funding from an outside source like a lending institution or a bank. In debt financing, the borrower agrees to return the full amount of the principal borrowed in addition to some percentage of interest, which amounts to a fee for the lender. In most cases, this kind of financing will involve some form of collateral offered by the borrower as a guarantee against defaulting on the loan. The advantage of this type of financing is that the owner retains full control of the company, although, in the event of default, some assets may be lost.
Do You Need to Finance Debt for Your Small Business?
Contact us at Commercial Capital Finance if your small business has a need to finance its debt. We’ll be glad to discuss some options with you that may prove advantageous to your small business.