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Growing BusinessMONEY

How to Finance Your Business Growth

QUICK SUMMARY

Finding a way to finance your business’s growth is vitally important, but it’s not necessarily a simple thing to do. Each option has pros and cons, and you should consider all of them carefully before deciding how, when and how quickly to grow your business. When considering debt and equity financing, realize it’s not necessarily an either/or decision—you could use both. Striking the right balance between the two is often the best solution.

Advantages vs. Disadvantages of Debt Financing

Debt financing typically involves taking a loan from a bank or other financial institution.

advantages

As a small business owner, you may shy away from debt financing. However, consider its numerous benefits.

  • No loss of control
  • The ability to build credit history
  • Tax-deductible interest

disadvantages

There are some drawbacks to consider as well.

  • A good credit rating is required
  • Must make regular payments
  • Need to put up collateral
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Advantages vs. Disadvantages of Equity Financing

The main alternative to debt is equity financing, which frees a small business owner from owing money. But equity financing comes with some loss of control as you seek to expand your business.

advantages

Equity financing has its own set of plusses.

  • No loan to repay
  • Equity partners can expand your network
  • No need to be credit worthy
  • No profit? No worries about monthly loan payments

disadvantages

There are tradeoffs.

  • You cede some control
  • Need to share profit
  • Potential for future conflict
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Advantages vs. Disadvantages of Venture Capital

Venture capital is a common form of equity financing. It can be suitable for fairly young small to midsize companies with good growth potential.

advantages

Venture capital firms have a vested interest in seeing your company succeed once they become partial owners. There are numerous potential benefits.

  • Expert help
  • Additional resources
  • Connections

disadvantages

However, venture capital involves some drawbacks as well.

  • Loss of management direction and control
  • Shared decisions and veto power
  • Loss of ownership
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Advantages vs. Disadvantages of Leveraged Finance

Leveraged finance refers to a heavier-than-normal amount of debt financing. This typically takes a different form than a bank loan or line of credit.

advantages

This is a type of financing best used for temporary needs and special situations.

  • Can help small companies in a pinch
  • Ideal for acquisitions and buyouts

disadvantages

A risky, costly and complex form of financing, it is best to use it sparingly.

  • Higher exposure to risk
  • More costly
  • Can be complex
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