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Small businesses often struggle to implement growth strategies due to a lack of capital. The majority of businesses, regardless of size, require debt financing at some point to ensure economic prosperity. Growing without external financing may involve the business taking a long time to meet its financial objectives, which is why it is essential to understand the different types of debt financing available, the purpose, and most importantly when to use it.
The common philosophy in business is “it takes money to make money, but it takes low-cost money to stay in business.” Where does this money come from? There are various sources in the market. From institutional lenders like banks to fully automated online lending platforms. But not all of them are suitable for everyone, you need to conduct your research and figure out which one works best for your company.
Further, debt is often miss-associated with a negative stigma, but it is important not to be intimidated by the term. By definition, debt financing is the process by which a company borrows money to be repaid with interest at a later date.
Depending on the loan tenure, payments can be made monthly, weekly, quarterly, or paid in full at the end of the term. In other words, business owners may use loans to increase business capacity in exchange for a fixed interest rate paid to lenders. However, lenders must be sure that the business is generating the proper cash flow to repay the loan, meaning that the business must be running and in good financial health.
Businesses tend to rely on debt financing because it’s quick and easier than raising capital from other sources. Business owners, however, must decide the level of debt they can afford before taking on this economic responsibility. Alternatively, some business owners are not using their money nor acquiring debt, but find new partners to fund their business. This is called equity financing. Equity finance differs from debt finance, in that, investors become part owners of your business and thus share in its success or failure. The cost of equity financing involves giving up some control over your business in exchange for available cash to invest. New investors not only share in your business profits but are entitled to a say in how the business operates. So, you must carefully consider how much control you are willing to give up.
Deciding on using debt or equity financing depends on whether you agree to share control of your business or keep the complete ownership.
Furo, a company based out in Florida, provides different financing alternatives that help small and medium-sized businesses grow without any restrictions, providing simple and fast funding when most needed. Most importantly, they are not interested in sharing equity and do not focus on credit scores alone like traditional lenders. The process is simple, applying at Furo takes less than 5 minutes, and approval takes no more than 36 hours, with no hidden fees and no complicated terms.
Like Furo, there are alternative options, and whether you decide to use debt or equity financing depends on your business necessities.
