I get this question a lot, which is right for our company, debt or equity? Well, there are two really distinct types of financing and you need to understand the benefits and the implications of each.
Now, debt is an infusion of capital into your company. The expectation is that there will be a periodic re-payment, in the form of principal plus interest. The end result is the ROI for our investor, or the return on investment.
A good example of debt funding would be loans or bonds. There are some pluses and minuses. The biggest one for debt is positive, you do not have to give up ownership. The down size is this, you must have sufficient and reliable cash flows and collateral to back it. So, it is really not a good option for most new companies.
Let us take a look at equity. Equity is an infusion of capital in exchange for stock representing ownership in the company. Common examples would be: a common stock, a preferred stock, warrants, which are the right to buy the stock at a future date at a given price. The positives here are you have an infusion of cash and no debt service attached to it. The downside is this really is a high price, or high cost of financing. You may ask the question, well why is that? Well, it is like this. Equity investors take on a high degree of risk, and their expectations are for a higher ROI.
If a capital seeker has questions trying to evaluate the benefits of going with equity or debt financing, we welcome their call at the Capital Match Point. That is what we are here for, to help you get your company funded.

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