There are more than one way to fund a new business venture and accelerate

its growth . It involves bringing in outside money at some point in their

venture. The two primary options present in front of the seekers are :
business debt financing or fundraise for equity investors. Each option
carries with them, their own pros and cons.
When you borrow money from an outside source and promise to return the
principal in addition to an agreed-upon percentage of interest, you take on
debt . With traditional types of debt financing one is not giving up any
controlling interests in their business. They get to make all the decisions,
and keep all the profits. Therefore maintain ownership. Another big pro is
that once the debt is paid, liability is over . Tax deductions is a huge
attraction for debt financing. In most cases, the principal and interest
payments on a business loan are classified as business expenses, and
they can, therefore, be deducted from your business's income at tax
time. The most significant and obvious disadvantage of using debt is that it
requires repayment, no matter how well the company is doing, or not . This
can be a huge burden specially on a startup . Too much debt can negatively
impact profitability and valuation. It might seem attractive to keep bringing
on debt when your firm needs money (levering up) but each loan will be
noted on your credit report, hence affect your credit rating adversely . Also
high interest rates depending on the macroeconomic stability cannot be
discounted .
Equity financing involves selling shares of your company to interested
investors or putting some of your own money into the company. With
equity financing, there is no loan to repay. The business doesn’t have to
make loan payment like in debt financing which can be a relief specially if
the business doesn’t initially generate a profit. This gives the necessary
freedom to invest more money into your growing business. If a company
lacks creditworthiness – through a poor credit history or credit rating or
lack of a financial track record – equity can be preferable or more suitable
than debt financing. So the credit issue is gone. Forming informal
partnerships with more experienced individuals or firms allows ones own
business to gain knowledge and increase networking . With all the
advantages that equity financing seems to have, there are cons to it too.
Unlike in debt financing , one looses control of their business here . The
price to pay for equity financing and all of its potential advantages is that
you need to share control of the company. Sharing ownership and having to
work with others could lead to some tension and even conflict if there are
differences in vision, management style and ways of running the business.
Another disadvantage is that profits have to shared but that can be a
worthwhile tradeoff if one is looking to gain from the business acumen of
the investor.