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How to raise capital: debt or equity?

In order to raise capital for the needs of your business, companies mainly have two types of financing options: equity financing and debt financing.

Equity financing

It requires selling a portion of your company’s equity in return for capital. The main advantage of equity financing is that there is no obligation to repay the money you acquired through it. There are no payment debts or interest charges. All entrepreneurs want to run a successful business and provide the equity investors with good returns on their investment.

Debt financing

As the name suggests, it involves borrowing money and paying it back with interest. The most common form of debt financing is a loan. This type of financing sometimes comes with restrictions when it comes to taking advantage of opportunities outside the realm of its core business. The advantages of debt financing are numerous. First, the lender has no control over your business, all the lender expects is timely payments. Next, the interest you pay is tax deductible. Lastly, you can easily forecast your expenses because loan payments do not fluctuate.