Loan or Equity

In the life of every business, finance plays an all important role. Yes, expertise, integrity, discipline, passion etc. are a major recipe for business success, however the pivotal function of finance cannot be understated in any discourse.

While finance can be raised from own network of family, friends, colleagues etc, these people can get somewhat encumbered with the inconvenience that is brought about by such commitments.

There is also the issue of dilution of ownership. This arises when financial assistance is sought and obtained in exchange for some stake in your business. You are no longer in full control of the management, decision- making and realized profit.

Where you decide to self finance your business project, there is likely to be a strain on your personal funds. If you are a big thinker who would like to start big, your personal start up funds will probably not give you the needed leverage.

For debt financing, your shareholding remains unthreatened. Given your capacity to repay loans as at when due, evidenced in your financial records, you can access needed funds that match your big business ideas.

Either way, loan and equity are ways of raising capital in business, with accompanying pros and cons. Depending on your risk appetite, you will have to decide which is best suited for your business, both now and in the long term.

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