Equity: Whether you are just starting out or well into your business, when presented with the opportunity to receive funds many deals can look attractive. Especially when they look like they just come with a business partner and no interest. But you may not have considered all of the risks and expenses that go into giving up equity versus taking out a loan.
Consider these 4 important reasons borrowing may be better for you then giving up equity.
1. Loans Are The Less Expensive Option
When you give up equity it is kind of like getting a tattoo. It is permanent and if you want clean slate back it can be nearly impossible. This is not true with loans. Loans offer little surprises and you know when your last payment is due. When you give up equity there is the possibility of unforeseen costs and expenses.
2. What Is Your Rate Of Return?
Consider where you will be after you complete your goals with the funds you will receive. After you receive the fund from a loan, what will be your overall expense? How much revenue will you have generated? What about when you give up equity? You may generate the same amount of revenue, but at the end, you will still have lost that equity. You can always make the money back lost from a loan, the same cannot be said for equity lost.
3. Benefit From The Tax Code
When we make business decisions only sometimes do we consider the tax consequences but are benefits often reflected on? If you have not considered the benefits of choosing a loan over giving up equity, you should seek out an accounting firm to put you in touch with a professional chartered accountant. They can help you realize that there are tax benefits to business loans. Again, this makes borrowing a very appealing option.
4. Benefit From The Discipline
Just the word debt can sound intimidating. We often think about the payments and interest involved. But when you realize the discipline, benefits, and long-term effect it is a no-brainer. Giving up equity in exchange for funds is often too good to be true. The consequences can last longer than any lone you are considering.
The decision to borrow or give up equity can be a difficult one and is dependent on a number of different factors. If you are still unsure about what is the best option for you, consider consulting an accounting firm to help you make the right decision.