Funding your small business with equity or debt - How is that possible?

by Alden Brooks

Financing your small business with equity or debt? How is that possible?

Yes,  believe it or not, there are several "outside the box" alternatives when it comes to small business financing. It's important to be aware of these options and find out which solution is the right one for your business. These options range from banks and other professional financial institutions, to venture capitalists and investors, and even small business grants.

It’s always a rough start

While setting up your small business, you may not have adequate funds to start with. In such circumstances, and if there is no other option left, your plastic money will come in handy while you arrange for the much needed funds. It is advisable that you repay the credit card balance on time to avoid being caught in a serious debt trap and have to resource to debt management in order to eliminate credit card debt problems.

Business owner needing help with business plan

But, what other options are there?

Debt financing

Debt financing is defined by Investopedia as the process by which a “ firm raises money for working capital or capital expenditures by selling bonds, bills or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.”   

Different financial institutions may provide you a business loan by checking your credit history, the collateral that you have and your business plan. These elements enable the lending institution to know your capability to pay off the loan. The US government guarantees some of the loans offered by the Small Business Administration in order to help you lessen the risk on the part of the financial institution. By giving assurance that the loan will be paid off in case you may default, the bank loans money to the entrepreneurs that, otherwise, may not have been eligible for it.

Equity financing

Financing in this case depends upon the equity in your business and it’s traded for a part of your yields. The shares of your company may be sold in the form of stock options to private investors like venture capitalists or investors.

It’s important to note that in order to qualify for this kind of financing you need to prepare a proper business plan that proves your business is economically viable. For this reason, equity financing is more commonly sought after a business gets an opportunity to expand.

Small business grants

There are often not too many grants available to small businesses but these are certainly worth pursuing. Both the number of grants and the funds offered tend to be restricted because of the fact that they come from tax dollars. In most cases, whatever grant money is paid to selected businesses it's not required to be paid back.

Grants are generally given to various types of businesses, particularly those that have something positive to contribute to the community and/or the environment or for minorities. If your business falls within these groups you may be able to qualify for a grant. You will be able to find more information on grants from your local, federal and state governments.

is the Community Member of Oak view law group (OVLG) and has been sharing his opinions and suggestions with the Community since 2009. He has also made notable contributions through various articles written on different subjects related to finance and investing.
Did you find this article helpful? YesNo 0% said yes (0 votes)