There are a lot of ways business owners can grow their companies. It’s important to pick the best option that makes sense for your particular situation. In business financing this is called “structuring”. The correct structure can propel your company ahead or have it held back by improper financing.
Two Kinds of Money
It doesn’t matter how much money your company needs, money only comes to your company in two specific ways, debt or equity. Money which is borrowed and must be paid back or equity where you trade ownership of the company for cash. What determines which way to proceed is personal preference.
If you keep all the equity of your company for your self, you never have to answer to no one. But all the responsibility and risk falls on you. Borrowing money to finance your company may necessitate possessing substantial collateral, many new companies do not have many assets at startup.
If you have the means to take on debt and pay interest, debt financing is the thing to do. But be sure you have the assets at hand to facilitate your loan. Lenders don’t like to under collateralize their loans. Lenders like to see large assets before writing new debt. But if you do, you will have complete control. You will always be able to decide the direction of your company and will also receive all the benefits of your work.
Equity Investor Benefits
Raising money through an equity offer can provide advantages too for later borrowing from lenders. It can be an initial step on the path to growing your company even larger. If you raise money by issuing equity first, later your creditworthiness will improve leading to more growth.
It’s an important decision how you grow your company. How you access cash for you companies growth at the very beginning can determine your companies success or failure.