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Choosing Between Debt & Equity Financing

When raising capital for your business, you have the choice between raising it via debt or equity. Each has its own advantages and disadvantages, and should be carefully considered in each situation.

Debt Funding Assists Small Companies Fuel Growth

All organisations need capital to keep operations on, and constant inflow of said capital is needed for growth. Financial debt financing permits organisations to get a quick injection to their liquidity in exchange to repay the principal sum plus interest.

However for small companies without the methods of offering collateral for a secured bank loan or who don’t have enough credit rating, getting debt financing can be challenging.

One alternative would be to obtain a SME Micro Loan from a licensed lender. In this case, provided that you show the capability to make good on settlement, you ought to have the opportunity to secure a funding in relatively swift time.

Equity Financing, The Alternative For Raising Capital

If you have actually ever seen an episode of the prominent TV series “Shark Tank” then you would certainly recognize with equity financing. In layperson terms, when you choose to elevate funding using equity, you basically sell of a portion of your business to get capital funding.

Typically, capitalists can be found in form of larger firms wanting to do a merging or acquisition, venture capitalists or angel investors. Thus, equity financing is solely offered to companies that are regarded by financiers to be worth acquiring.

A preferable facet of equity financing lies in that it is the financier who absorbs the risk. For example, should your organisation venture fall short, you would not owe money to the financier. In addition, because no repayment is needed, your firm will have a relatively better cash flow.

Why Debt Funding Should Be The Preferred Type of Raising Funding

Debt funding is popular with several of the most successful business individuals on the planet. Perhaps, its biggest advocate is billionaire Kevin O’Leary who famously transformed a $10,000 IOU right into a $4 billion sale of his enterprise.

The most significant advantage that a personal loan in Singapore offers is that it enables you to retain full control of your company. When you raise financing via equity, your capitalists get to profit from all future company activities. This includes any prospective future sale of the company; in this scenario, you would not be gaining the complete valuation.

Another possible drawback is the onboarding of your investors as partners. Since they possess a percentage of your business, they are allowed to having a say in all major business decisions. If you find problem in reaching a concession with them, you will likely be forced to buy them out however at a greater price.

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