Credit And Equity Financing For Your Company

Many business owners need money for a startup or to expand operations. Debt and equity financing are the two main ways to get access to funds for a business project. Businesses that opt for equity financing inject cash into the company while those who choose debt financing borrow money to invest in the business. Equity financing is recommended if most of the company&rsquo;s profits would otherwise go toward debt repayment. Moreover, business owners may not get approved for the type of loan or amount they would like to take out. Partners and investors can then offer financing and expect to receive a portion of the profit in exchange for their investment. If no profit is realized, business partners are not paid anything. An additional benefit is that no debt means more cash for your business. You can cover the required startup costs by using your cash and the cash of your business partners instead of paying off a business loan. If experienced investors propose to invest in your business project, they may give you valuable advice. This is particularly important if you are just starting up. There are different investors to consider, however, including venture capital funding and angel investors. It pays to do some research on your investors and choose them wisely. Equity financing has some disadvantages, and a main one is that if you fail to act in your investors best interest, you can face a lawsuit. Another downside is that investors and business partners gain ownership in your company, and their level of involvement depends on how much they have invested in it. You should be careful if you do not want to share ownership. Investors are after your profits unlike banks, which only expect that you pay your loans back. Debt financing is another way to secure money for business expansion, but a portion of your profits goes toward debt repayment. Still, it is a good option for businesses that expect enough cash flow to pay off their debts, plus interest. One of the major advantages to debt financing is that borrowers retain ownership of their business. Want to know more about [http:/www.financialshares.org/what-factors-do-banks-take-into-consideration/ unsecured line of credit], go to this mortgage calculator for [http:/www.retirenowblog.com/how-to-find-consolidation-loan-if-you-are-retired/ more options].If you make timely payments, you also build good credit. Debt financing is relatively easy to obtain, especially if you have good credit. Your lender cannot claim future profits from your business operations and if your company turns successful, you will reap the rewards by yourself. Unless you take out a variable rate loan, you will know how much you pay every month. You can develop a plan to repay the principal amount and interest due. Unlike equity financing, you are not required to send reports and mailings periodically and will not be held responsible by business partners. You will not have to seek your shareholders&rsquo; vote before you take certain actions and are not required to hold meetings with shareholders on a regular basis. Finally, regarding disadvantages of debt financing, an obvious one is that unlike equity financing, debt must be paid at some point.