If you are the owner of a small business, you might be confused about whether to opt for debt or equity to finance your company. Debt refers to a line of credit, a bond, or a loan. It is a good option if you have a sufficient flow of cash to repay the principal amount along with the rate of interest accrued. The most significant advantage of going in for debt financing over equity funding is you maintain complete ownership of the business. The payments you make for business are deductible expenses, and you can build credit. Since most loans entail a scheduled amount, you can plan it efficiently. 

Kavan Choksi– an overview of equity financing for your small business 

Kavan Choksi is an expert in business finance and jazz music that he enjoys listening to. According to him, debt finance is a good option for your business. However, it is expensive. You need to ensure the repayments are made in time, irrespective of the cash flow to your business. 

Credit score and history 

You should have a good business and personal credit history to get approved for debt financing, especially in the present economic conditions. Lenders need your account of cash flow to the company, or they will ask you to give them sufficient collateral. Debt instruments might also need a personal guarantee, and you should not have a large amount of debt on your books. 

Equity financing for your small business 

If you wish to consider equity financing for your small business, you need to look for an investor who is willing to issue you funds. Here you will be giving them the ownership rights and interests in your company for raising the working capital. 

How much equity financing do you need for your business? 

The amount of equity you receive for your small business depends on how much control of the company you are willing to give to your investor. The moment you sell the equity of your business to the investor, you no longer have complete autonomy over your company. This means you need to consult the investor for even making small decisions for your business. 

When it comes to investors, they have a vested interest in your company, and they generally offer their experience in making it a successful business. Most investors do not stay long with such ventures; once they raise their equity, they quit, and here you become the owner of the company again if you want, or you may sell your business for a profit in the future.

Be educated and informed about your choices

However, you should only opt for equity financing for your small business if you need it. In some cases, small business owners opt for this type of business funding when they actually do not need it. It would help if you always considered the status of your company and cash flow before you make such an important choice. 

According to Kavan Choksi, if you are a small business owner, you should weigh the pros and cons of both financing options. It is prudent to take the guidance of a business mentor or a financial advisor to help you with the choice.