Debt vs. Equity

When companies are looking to fund growth and expand there are two main sources those funds can come from, debt and equity. Utilizing both effectively is important for any business owner and understanding the differences between them can be important when choosing between debt vs. equity.

Striking the right balance between debt and equity financing can be crucial to the success of your business and the profits that you take from it. Understanding key aspects of the two is the most important step in striking that balance.

Debt

Debt is any liability the business incurs that results in a financial obligation and while generally many people frown on incurring debt it can actually be a useful financing tool.
Key aspects to consider when incurring debt include:

Equity

Equity refers to giving up an ownership stake and the right to participate in the success of the company in order to secure funds. Key aspects to consider when funding through equity include:

Debt vs. Equity

Ultimately choosing the right balance in debt vs. equity as a business owner is something to carefully consider and depends on many factors. Cash flow sensitivity, concern over control, and the ultimate use of the funds all vary from business to business and individual to individual. Considering the points above will help ensure you make the appropriate decision for you when balancing debt vs. equity.
By Jeffrey Glen

Copyrighted 2016. Content published with author's permission.

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