Running a small business can be an exciting experience. However, it may come with some challenges as well. This can be true in particular when it comes to finances, and especially if you find yourself needing to secure a loan. That doesn’t mean, though, that you should necessarily feel discouraged. With a little research, it can be possible to find a solution that works for you and your business.
What Is Debt Financing, and Who Needs It?
When running a small business, it is likely that at some point or another, you will find yourself needing extra funds to keep your business running smoothly. Or, if you are looking to expand or grow your business, it is likely that you may need extra funds in this situation as well. It is during one of these times that business owners often begin to look at what their options are for financing their business. Two of the most common financing options that get considered are debt financing and equity financing. The first term is one that refers to borrowing money from an outside institution, like a bank. With this kind of financing, the business owner usually agrees to repay the principal loan amount with interest, over time. Equity financing, on the other hand, is usually where investors will pay cash to a business, with the agreement that they will receive a share of the business.
Things to Consider
When trying to decide what option is best for you, there are a few things it can be helpful to consider, as both options have their pros and cons. With debt financing, one of the pros is that no matter what, you retain ownership of your business, which is not necessarily the case with equity financing, since investors will also hold some steak in your company. However, one of the cons is that you may experience issues with paying back your loan regularly, especially in the early stages, which may not be as much of an issue with equity financing.
The Final Word
Starting or growing a small business can be an exciting endeavor, however, it may not always feel easy to do. This can often be in part because of financial decisions you may have to make along the way.
That doesn’t mean, though, that you should necessarily feel discouraged. With a little effort and research, it can be possible to find the financial solutions that work for you.