Setting-up your own business entails financial support. However, if you do not have sufficient money in your bank, then you’ll need to look for financial source. Basically, there are two financing options available. These are the debt financing and equity financing. To be able to understand them both or what would really fit your needs, here are the advantages of each over the other.
1. Debt financing
This simple means that you just take out a loan from any lending agencies like the bank or even to a private investor. The loan amount provided would be paid off on the agreed time duration.
Advantages of debt financing:
- Security of the company ownership
– Basically, the bank or the investor which lend you money do not have anything to do with your business. Even if you owe money from them, they do not own any part of your business even on your daily operations. You just have to make sure that the payment is paid on time.
- Advantages over tax
– Even though your loan earns interest, that interest is tax deductible which makes your loan payment calculable every month.
2. Equity financing
This is quite the same with the debt financing. However, the only difference is that you do not have to pay back immediately. Quite cool! But, the real thing is that you have to pay the lender sooner or later in times when your business started to make money.
This is better compared to making payments with interest on a monthly basis.
The moment you start paying, you give assurance to your investors an agreed portion of your business profits over the span of your business.
That portion can be computed based on the release equity calculator.
Advantages of equity financing
- Payment of interest is not required
– Interest is not included in your subsequent payment method. However, a portion of your business profit will be owed to the investor afterwards.
- No monthly payments
– In this financing option, you will have to start the payment once your business started to earn profits. This gives you ample time on saving more money while keeping your operations on the run.
- You don’t have any liability
– In case your business does not attain good outcome, it is the investors who will have to take the risk of it.
Once you already decided what fits your financial needs, it’s time to make the initial steps to take when getting a business loan. It is to find out for the best investor in town so that you would be assured of the quality of service that they can offer.