Funding a new business may sound like a daunting task, says Douglas Battista. It’s not as difficult as many think, however, and there are options that make financing a small business accessible even to entrepreneurs with little to no credit.
According to Douglas Battista, debt financing is the most common way that small business owners find the capital to market a product or service. Debt financing is when a borrower puts up collateral and obtains a loan from a lending institution, such as a bank or finance company that specializes in commercial lending.
Debt financing has several advantages, points out Douglas Battista. Business owners have the freedom to retain 100% control over the business. They are not beholden to stockholders or investors. Additionally, debt financing can help a new business owner establish credit to further the business later on. Interest on these types of loans is nearly always tax-deductible, which may help quell reservations on the part of the borrower.
Douglas Battista describes equity financing as financing which involves bringing on partners or investors to provide capital. This is done in exchange for a proportionate share in ownership, including creative control and profits. Equity financing may be more difficult to obtain since investors are relying on the business to turn a profit in order to get their money back and create a revenue source for themselves.
One of the main benefits to equity financing, says Douglas Battista, is that a less-than-stellar credit history isn’t always a barrier to funding. Investors are often independent persons or businesses and can set their own financial requirements.
The bottom line
Both forms of credit have their own pros and cons. According to Douglas Battista, each allows a business owner to market and manufacture their products without having to come completely out of pocket in those first few crucial years.