Lenders don’t want a stake in your business, only the certainty that you can repay that debt. Do you want to maintain complete control over your business?ĭebt financing allows you to maintain control of your company. Additionally, there’s a lot more legal work involved in equity financing, which, again, makes this the more time-consuming route.Ģ.
If you’re dealing with more than one investor, differing opinions on what that value ultimately might be could make matters more complicated and, thus, take even more time and negotiation.
Business owners and investors will go back and forth negotiating the investment package, meaning what percentage stake will be given in exchange for funding, and a lot of time is spent discussing the future value of the business. You know exactly how much you’ll be paying back and by what date.Įquity financing takes more time. With debt financing, the terms are straightforward and laid out at the beginning. Long-term debt financing is considered an installment, and typically finances machinery, equipment, or start-up costs. Short-term financing is revolving and is used for purposes like inventory or material costs. You can also use financing for either the short or long-term. With debt financing, you’ll save a lot of time, and you’ll receive the money relatively quickly, typically within a few days to a few weeks. Each has its pros and cons depending on your needs.īefore deciding which option is right for you and your business, ask yourself these four important questions: Equity financing means someone is putting money or assets into the business in exchange for some percentage of ownership. Debt financing means you’re borrowing money from an outside source and promising to pay it back with interest by a set date in the future. If you are a business owner who needs an influx of capital, you typically have two choices: debt or equity financing.
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