Debt Financing
Deciding whether to choose debt financing, equity financing, or a combination of the two depends on many factors, including your toleration for risk and your willingness to share in the ownership of your company.
Funding your business with debt financing means you assume a loan that must be repaid. Some examples of debt financing include bank loans, SBA loans, lines of credit and credit cards.
Is debt financing your best option? Consider these things carefully before you decide:
Ability to repay - Will the cash generated by your business be able to cover the loan payments?
Collateral - Seeking a bank loan? Do you own significant collateral, such as a home or office building, to back up the loan?
Business plan - Do you have a strong plan that shows how your business will reach profitability? Does your business have an edge over the competition?
Debt terms - Are the terms of the loan fair to you (ie., a fixed and reasonable interest rate)?