A business needs funds to expand its operations, to pay off daily expenses, and to carry out necessary activities but in order to raise the funding, it is necessary to select the mode of it. There are two ways to raise funding for business which is either by equity financing or debt financing. Now the difficult part is deciding the best option. Before coming to deciding part lets first understand the basics of both the approaches.
What is Debt Financing?
Debt financing is nothing but securing funds from lenders. This could be done either by taking loans from banks or by financial institutions. There is no dilution of stakes involved in this process but a certain percentage of interest is charged by the lenders which the borrower needs to pay before the due date. Generally, entrepreneurs fear taking loans from lenders because it is mandatory to return the amount regardless they dont have the sufficient funds to repay.
What is Equity Financing?
Equity financing is securing funds through investors. Every entrepreneur plans to raise capital through investment but forgets the difficult part which is to convince them to do so. In this type of financing there is no interest charged by the investor but sometimes investors acquire stakes from the firm or take a small cut from the profit elevated by the business. The best part of this approach is you dont have to plan that you have to raise this much fund by a particular period of times as it is not necessary to return the amount.
How to decide the best option for business?
Well, you must have a clear view about both the approaches but now deciding is the essential part. Only you can decide this by asking yourself these basic questions:
These are the basic questions that you need to decide to select a financing approach for your business. If you have a problem with finding good investors then leave that to BusinessEx platform. You can easily register and find a number of investors waiting for a good business opportunity like yours.