Debt or Equity; Which is Better in Business for Capital
Whether you are selling a part of your business in form of equity for growth, or you are borrow money to improve business while maintaining ownership but taking risk, or maybe you just do it solo according to your speed, how you fund a business determines how much control you have over it and there is no perfect way to go about it.
There is one fuel that runs every business, it is either debt or equity and your choice determines how much risk you will be taking, how much you are willing to lose, and how much you are willing to make at the end of it if all things work out well. You can either be rich or remain an employee at your own company based on how you get funding for your business.
Businesses that sell equity for liquid cash at the beginning of business do this because they are starting without cash, they do not have the credit worthiness and they intend to grow and this is common with startups but surprisingly it is not the same for big corporations or even companies under the S&P 500.
Dangote built a $20 billion crude oil refinery and he did it purely on debt, and this is similar to other large corporations. Companies like Apple that have billions of dollars in liquid money still issue corporate bonds, putting themselves in debt. These companies do this because debts do not dilute the ownership in their company, and the interest on these loans is not significant while being tax-deductible. So these companies pay less taxes on borrowed money, keep their ownership, and still have raw cash sitting.
If we are to look at it, we will see that equity is a way to seek help while debt is a way to get funds while still having control, and both methods can either become a success or an awful failure.
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With an equity sale, a fraction of the company is given in exchange for cash. It starts with an early round where angel investors or venture capitalists bring in seed money into the business. The money from this funding is usually used to build the prototype, the product, and so on. After the early round, the next round is Series A and at this point, we know the product ot prototype works, finding the right market and having your own world is what this fund is for. In series B, scaling is the goal because the business is doing well, and hiring is important. If all goes well, Series C is the next level and this is the pre-IPO level after which the IPO itself reaches.
Talking about debt, there are multiple ways to get debt in business and it all depends on how big the busines is. The most traditional way to fund a business is via the classic business loan from a bank who will in refurn get interest. Companies also use line of credit where theybhave access to a particular amount of koney but only pay interest for what they use. When a company gets very big, they begin to use corporate bonds where they offer people a percentage of interest over a period of time thereby tapping into the pool of capital available to the public.
Which ever way you believe you can get funding, begin immediately and grow your business but in all weigh the risks and the gains.