While venture capital has catalyzed the recent technology boom, traditional industries have successfully utilized debt financing to fund their businesses since the dawn of commerce itself. Typically in the form of small business loans, debt financing has some distinct advantages—and disadvantages—over equity financing.
As illustrated below, factors such as interest rates, business collateral and loan approval should be considered when deciding whether to pursue debt financing over equity financing.
Some businesses prefer equity financing since loans can severely limit precious cash flow that should be dedicated to growing operations. As a prudent business owner, you should conduct due diligence on both debt financing and equity financing to determine which funding source gives your business the best chance of success. For more insight on different funding sources, check out our equity financing infographic and our video on the secrets to bootstrapping.
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