Pros and Cons of Debt Financing

One of the main barriers small business owners face when growing is access to capital. Because of this, it’s important to get to know the pros and cons offered by debt financing.

You likely know that it takes money to make money as a business owner. However, it also takes low-cost money to make things last. It’s finding a source for this money that is challenging.

One option is debt financing. Put simply, the term “debt financing” means you raise capital by borrowing money from a bank or lender. After receiving the loan, the creditor receives interest for the money you borrow. Keep reading to learn the pros and cons offered by debt financing to determine if it is right for your business.

Pro: You Don’t Have to Provide Business Equity

Debt financing allows you to retain full ownership of your business. If you accept a loan from an alternative lender or financial institution, you must pay on time for the life of your loan. However, if you give up part of your business equity for funding, you may not like having to take input from third parties (the lenders) about your business. With debt financing, you retain ownership while receiving the funding you need.

Con: You Have to Repay the Loan No Matter What Happens

When you accept funds from a lender, the rules are usually pretty clear. You must repay the money you borrow and interest. This means that even if your business doesn’t continue to stay open and operate, you must keep making payments on the loan. Also, since most lenders that provide financing require you to guarantee the loan in some way, assets may be sold to handle the debt if you cannot repay it.

Pro: Debt Helps to Fuel Growth

You can use long-term debt to purchase equipment and inventory, hire new workers, and increase your marketing efforts. Also, when you take out a long-term, low-interest loan, it will give your business the working capital required to run smoothly and stay profitable throughout the year.

Debt Financing for Your Business

Debt financing offers both pros and cons for your business. Understanding what these are will help you know if it is something that your business should consider. Being informed is the best way to know if you should use debt financing for your business. Just make sure you find a reputable lender before moving forward with this financing option.

Seek Expert Assistance

Cross Commercial Capital is proud to offer a diverse portfolio of financing solutions for the unique needs of all businesses. No two companies are alike, and we appreciate the ingenuity of those who want to grow their businesses with intelligent funding. As frontrunners in the commercial finance industry, we also know the benefits of taking calculated risks with expert planning.