Anyone who has owned a small business or dreamt of one day being a successful entrepreneur knows it comes hand in hand with stress and worries about how to finance the day-to-day financial needs for business operations. What you may not know is there are a variety of choices you can review to obtain the funding you need with the most common being debt or equity financing. The problem with that solution is many times the funding types are presented like you have to choose one or the other.
But what if you could move forward with raising debt and equity financing together? Raising debt and equity financing together can be obtained through various alternative finance companies and tools. Read on to discover why business owners everywhere need to know how they can access funding solutions that work together and at the same time.
Options in Business Funding
Equity and debt financing fit together like two puzzle pieces. Raising equity and debt funding complement each other well and many successful start-ups used both to gain an advantage over their competition. Your options to find the funding you need aren’t limitless, but they can be strategically applied.
There are three ways businesses find the funding they need to start up or maintain until a profit is being generated. There is:
- Funding a business through a savings account
- Funding a business through debt financing
- Funding a business through equity financing
You may be surprised to know that in a recent survey of over 5,000 startups, one-third of them used debt financing to begin their business. Two-thirds of the businesses were financed by personal savings or investments from friends and family members. Then there were new business owners who put all their financial costs on a credit card with the highest interest rate and is a very expensive way to borrow money.
Sometimes, the best way to finance your business is a way you don’t think of right away. Angel investors, venture funding and bridge loans have a reasonable interest and can help you out in a very short amount of time. The puzzler is only one in ten people use their services.
What Are the Advantages of Debt Financing?
When you’re using raising debt or equity funding to help obtain funding for your business, there are distinct differences you need to know between the two financing methods. When a business first starts and if the owner starts looking around for funding oftentimes, they’ll use equity funding. As the business grows and develops, many business owners use debt funding more often.
- Debt financing ensures you aren’t giving away part of your business. Debt funding doesn’t dilute your ownership percentage.
- What you borrow for your business has an agreed-upon interest rate for the loan, and you have to repay the loan and the interest. The lender can’t get any profit now or in the future from your business other than what’s in the loan agreement.
- As a business owner, once you know how much you owe for loan principal plus the interest so you can incorporate that figure into your planned expenses in a monthly budget.
- There are no state and federal securities laws or regulations with restrictions you have to abide by.
- Any interest you’re paying on a debt loan can be a deduction on your business tax returns.
When you claim a deduction on your business tax returns, you’re lowering the cost of the overall loan you obtained so the business loan gives you two financial benefits for one loan.
Bridge Financing and Alternative Funding
When you want to start the process of obtaining a loan, you may find you can’t find a traditional lender who will work with you because you don’t have any collateral. Small business owners need to know getting a bridge loan or alternative funding loan can be done even with unsecured loans. In fact, alternative lenders specialize in unsecured funding and have come up with a streamlined and timely approval process for various types of alternative loans ranging from bridge loans to equity funding.
Bridge Loans
A bridge loan is also known as a temporary loan and many times it’s secured by real estate. The reason its called a bridge loan is that most of the time bridge loans are used for bridging the gap between the homes sales price and the homebuyer’s mortgage, especially if the homebuyer’s existing home is still for sale. The brilliance of a bridge loan for businesses is it can help companies between funding rounds when they have a pressing need for capital.
Some bridge loans for businesses can be secured through a non-traditional online business loan in a day or two.
Equity Loans
Equity loans don’t have a fixed monthly loan payment, which is helpful for start-up businesses in their first few months. You can also obtain an equity loan even if you have problems with your credit. Your business equity or home is usually the collateral you need for any equity loan.
Debt loan repayments come out of a company’s cash flow, while equity financing doesn’t take any funds out of your business and that’s the main reason why equity loans and raising debt financing complement each other so well. Equity investors know they aren’t going to get a fast return on their investment and are in it for the long-term benefits just like you are.
Learn to Mix Raising Debt and Equity Funds Together
Entrepreneurs often need to think outside the box for their business to succeed. One of the ways is for them to learn how to mix raising debt and equity funding together. Finding a realistic way you can raise the capital you need for your company’s growth and development now has a solution. When you mix raising debt and equity funds together you have a near-perfect merger of two varying types of funding criteria that dovetail together.
Reach out to Capital Collaboration when you’re ready to take the first step or the next one to achieve your entrepreneurship dreams. You’ve now learned the strategic benefits of using equity and debt financing together because together, they are stronger than when using just one or the other. You can find the capital funding you need by calling Capital Collab or clicking over to our website.
Don’t be left behind on the road to a successful future.
