If you are looking for ways to financing your business or start-up, you must know the various available methods of financing. Some of the popular methods are equity financing and debt financing. You can hire professionals like Yorkville Advisors to get the best advice on the type of financing that would suit you.
Here we shall provide a short overview of the merits and demerits of debt financing so that you can gain some idea about this type of financing before consulting your advisers.
What is debt financing?
The idea of debt financing is the loan. You take a certain amount of loan from a bank or from private investors to invest in your business against a promise to pay back the money later.
Merits
1- Ownership
With debt financing, all you are doing is borrowing money. The ownership of your business stays with you. No one has any right or portion of your business. If you can pay your debts on time, you won’t face any trouble
2- Tax ease
Debts are ta deductible and very much predictable. So if you can make your payments on time, the amount of which is already known to you, it is a good way of financing.
Demerits
1- Interest
Loans need to be paid back with interest. Whether you are taking the loan from a bank or from a private entity, there will be some amount of interest and that means paying more than what you took. In addition, if you are unable to pay, the amount keeps adding up.
2- Hard to acquire
Even though you might get some advantage if you hire an investment adviser like Yorkville Advisors, getting loans can be hard, especially for new businesses. Both banks and private lenders are stingy and vary when it comes to lending money to new businesses with lots of conditions
3- Liability
You will mostly need a personal collateral to get a loan. This can be especially demanding if you are just starting up. Since new businesses have risks, the fear of having a personal asset at stake can be very pressurizing.
