Posts Tagged ‘equity finance’

If you are interested in starting up a small business but do not want to encounter debt problems it may be worth taking some time to look at the options available to get you up and running.

There are two main types, one is debt financing and the other is equity financing. Both financing options are outlined below.

Debt financing is simply a business loan which can be taken out on a short term or long term basis and incurs interest, but you will need to have a good debt to equity ratio to qualify for some of the lower interest options. Bear in mind that a business loan is different to a personal loan as a lender will not be able to gain ownership of your business if you fall behind with payments. Many debt financers expect the business owner to guarantee this sort of loan personally, especially if the business is operated from home.

The only disadvantage of debt financing is the fact that your lender will have complete access to your accounts.

What other financing options are there?

With equity financing you do not incur any debt whatsoever as you simply sell a percentage of ownership to an investor who can be anyone from a close friend, businessman or family member.

The most common investor in equity financing is a venture capitalist who is constantly looking for prosperous businesses to invest in. This injection of cash will stop you from falling into debt with a loan. However, a venture capitalist is eligible to have a say in how the business is run, depending on their share in their ownership.

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