Whether you're preparing to launch a startup or want to grow your business, one thing is for certain: You’re going to need money. Debt and equity financing are two different financial strategies: Taking on debt means borrowing money for your business, whereas gaining equity entails injecting your own or other stakeholders’ cash into your company. Two ways of bringing in capital to an organization are through Debt financing and equity financing.
One of the resources for debt financing is through loans and lines of credit. Some of the loans include a small business loan (SBA loan). The Small Business Administration (SBA) has a loan guarantee program that allows small and minority-owned businesses to borrow money for various business purposes. The SBA does not issue loans, but it guarantees the loans that are made under its programs by commercial banks and other lenders. The SBA requires that a detailed loan application package be provided to the lender from any business requesting an SBA loan. These loans are a good option for businesses that have no other source of debt financing.
The other means of obtaining capital is through a line of credit. A line of credit is a bank loan where a business can draw out funds whenever money is needed in the business. Companies with seasonal sales patterns draw on their lines of credit during the slow times to pay the bills and then pay the money back during the high season. Lines of credit are usually only available to well-established businesses that have previously raised capital through an equity financing.
One other to look at when comparing and contrasting debt and equity options is equity financing. This is the method of raising capital by selling company stock to investors. In return for the investment, the shareholders receive ownership interests in the company. In order to grow, a company will face the need for