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Financing Your Business: Equity or Debt?

Financing Your Business: Equity or Debt?

For any growing business looking for financing, it’s an absolute must to seriously consider if you want to offer equity or debt. The benefit of offering debt or loans to potential investors is, of course, that you retain all of the equity and so a claim to all profits. You also get to keep total control and don’t have to worry about other shareholders causing problems for you.

That said, we would take the other side of this debate. We would recommend you take on equity investors long before you take on creditors, for two key reasons. First off, with an equity offering you don’t have any interest payments or looming debt. Most people (including entrepreneurs) do not think as rationally and clearly as they do when they have borrowed money to make money. People tend to make decisions more hastily, and they tend to hit the panic and euphoric buttons much too quickly – not exactly the environment for shrewd business decisions.
Second, and even more significantly, by offering equity, you’ll get the benefit of the invaluable wisdom and guidance you gain from your initial investors. These are people that want you to succeed just as much as you do. They are also people that are accredited, which means they have succeeded financially, having acquired tremendous experience and knowledge along their way. Yes, you will give up a bit of control, equity, and some of your company’s profits, but we would take ongoing free consulting and guidance over leverage any day of the week. Remember, leverage works great on the way up, but if you don’t hit your profit goals, it will come down on your business just as quickly!