The way you decide to finance your company, that is, the choice between debt financing or equity financing is trickier than you have ever imagined. There is a lot that relies upon the decision, and they both, needless to say, do outweigh each other in various aspects. Today, we will discuss how debt financing impacts your company growth, so let’s begin!
To begin with, think of debt away from the business. Say, how does debt look like for average households? Clearly, not so appealing. This is exactly why even businesses doubt debt to be a sustainable source of finance.
Even though it has proved to be an asset for most of the businesses fueling growth in absence of regular cash flow, entrepreneurs still doubt its authenticity.
Before we discuss the benefits of debt if you are wondering whether or not debts are risky. Here’s your answer: Of course, it is, but isn’t everything a risk when you are running a business? You cannot let that risk stop you from seeking growth, right? Wondering how debt can offer you growth? Here’s how!
Keep complete ownership and control
One significant reason people choose debt over equity or any other form of finance is because of the ownership. The moment you bring venture capital on board, the controlling stake on your business is diluted.
Of course, financing through your own cash flow is an option but that is extremely slow due to the limited availability of funds along with all the other complications. On the flip side, debt neither dilutes the control nor restricts the speed. Plus, it also allows you to tap on all the growing markets.
Seek Growth, consistently
Nowadays, young entrepreneurs have a solid plan concerning their business growth. What now really concerns them is cash. The constant need for cash to fund their growth is their primary cause of concern.
This shortcoming can be easily plugged with a line of credit. Even when the cash flow from sales is irregular, you will be able to fuel your business and pay your employees.
Overcome Cash Flow problems
Now, before you say that my business would only face cash flow issues if it isn’t profitable, think again. Cash flow is an even bigger problem for profitable businesses. Here’s why:
Nowadays, businesses are in a constant obligation to sell goods for credit. This means that not only will they be delivering goods, but also have to wait for a couple of months to get paid.
This makes cash flow an even bigger problem for profitable business, leading businesses to even shut down. In this case, debt can help you fuel continuous growth, pay your employees, and keep your business running.
Before you call your banker to go ahead with debt financing, you need to look at the other side as well. Debt isn’t only a one-way road, offering you only benefits. There is a reason why not every business in the market is going ahead with debt financing. Like every other thing, debt financing also has a few negative implications; you should look into them and make an informed decision.
Overusing debt means calling your own funeral
Debt can be a very seductive finance option, leading entrepreneurs to overuse it to a point where there is no going back. The last time when you heard a story of a business going from rags to riches super quick, and again to rags or less even faster, know that it is because they overleveraged debt.
You must also take a closer look at the kind of risks involved in your business type. It sure offers amazing returns but doesn’t guarantee it. When you borrow money to finance a risky business, be prepared to pay for it because trust me, you don’t want to falter your debts. We all know the consequences that are to follow. Debt collectors are sure to follow you if you are taking debts and not able to pay it back.
In conclusion, let me tell you, debt is a very fascinating source of finance with innumerable benefits to offer only if you know how to capitalize on it. So, craft a plan, analyze your growth opportunities, and then make a well-informed decision, because no one knows your business better than you.