Should I fund my business with equity or debt?

The answer depends on your business’ financial health and long-term goals.

When you're looking to expand and grow your business, you'll almost certainly need extra cash to achieve this. But what’s the best funding route for your company?

Should you opt for equity or debt when it comes to sourcing this additional investment and capital? And what are the pros and cons of these two options?

Choosing the right funding for your business

Unless your business is in the fortunate position of having enough surplus cash to be self-funded, you're going to need additional funding in the form of either equity or debt.

There are some key differences between these two routes:

Equity is investment from private investors or venture capitalists, in exchange for shares in the company. It brings in large sums of money, but does mean handing over some control of the company to these new shareholders. On the flip side, you bring in the experience of seasoned professionals to help run the business.

Debt is borrowed money from a lender or bank, in the form of a business loan or asset finance. Debt gets you the money you need, but increases your overall liabilities as a company (which doesn’t look great on your balance sheet). However, you do retain more control of the business and can steer your own course.

Whether you opt for private investment or increased debt will depend on your current pain points, your financial health and your long-term strategic goals. For example, if you’re aiming to grow fast, then private investment and equity will generally be the best route. You’ll be able to raise Series A, B and C funding at the relevant points in your business journey, within the confines of having private investors as shareholders.

If you have a short-term cash flow hole, then borrowing money and increasing your debt is the preferable option. Using routes such as invoice finance, asset finance or secured business loans, you’ll be able to fill the cash gaps and continue trading.

The bottom line

Every business owner needs to find some sort of initial funding to get the ball rolling. If you have your own cash, that’s great — but most people don’t. And that’s OK.

There are two primary ways of finding funding for your business: equity and debt. Equity is typically best for owners who want to grow fast, and debt is typically best for those with a short-term cash flow.

If you need help getting your business off the ground, schedule a meeting with an advisor today and learn how else you can grow your business.

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