To grow a business, you may need some types of financing, such as debt or equity financing. Transworld M & A are experienced business brokers and they can help you with both debt and equity financing.
Debt financing involves borrowing money and repaying it over an agreed period and at an agreed interest rate. Equity financing involves raising money by selling shares or equity in your business. The decision is whether to repay a loan or part with some shares/stock in your business.
Debt financing has the following advantages:
You don’t need to dilute the ownership of your company or business. The lender is not entitled to future profits or increases in equity. Interest rates and repayment schedules are known at the time of the loan agreement which enables a business manager to plan and budget accordingly. If your business is successful and grows rapidly you will still have all the equity. Interest on debt finance is tax deductible which means the cost of the loan is less than shown on paper. The lender is not involved in the daily operations of the business and you don’t need the lender’s approval to make certain decisions.
There are also disadvantages to debt financing:
The loan must be repaid and if your defaults it will harm your business’s credit score. Defaults can also lead to lawsuits and liquidation. It is important to keep the debt-equity ratio within acceptable limits.
Equity financing involves selling stock to investors. In some cases, it might be easier to acquire equity financing then debt financing. You will likely to raise more money through equity financing than debt financing. However, it means diluting ownership and even relinquishing some control over the business.