Small-Business Financing: Debt vs. Equity
Small-business owners can choose from two basic types of financing -- debt and equity. This article looks at the advantages and disadvantages of each type and how they may be used for different purposes.
• Gather your company's most recent financial records (balance sheet, income statement, etc.).
• Speak with business partners or family members about how comfortable you would be handing over partial control of the company to outside investors.
• Request copies of your personal and business credit reports.
Business owners who seek financing face a fundamental choice: Should they borrow funds or take in new investment capital? Since debt and equity are accounted for differently, each has a different impact on earnings, cash flow, and taxes. Each also has a different effect on leverage, dilution, and a host of other metrics by which businesses are measured. The planned use of funds will also affect the choice of financing, with one option more appropriate for certain uses than the other.
- 1• Small-Business Financing: Debt vs. Equity
- 2• Debt
- 3• Equity
- 4• Striking a Balance
Personal Finance