Financing is when you borrow money to buy something or do something like starting a business. If you are just going to start a business or if you are planning to extend it, you can try out the two main financing options that you have. One is the equity financing and the other is the debt financing. Equity financing is considered to be the better option as you are not incurring any debts through this kind of financing. On the other hand, in debt financing you are actually taking on debts. However, one good thing about debt financing is that you are not required to divide the business amongst the equity investors. But, if you are planning to finance your business through debt financing, you should be able to plan that properly so that you do not require debt help in the future.
Debt financing and growth of business
Debt financing is when you borrow so as to start your business or extend it. You can use some business credit cards or you can take out a loan for your business purpose. Thus, in case of debt financing you are actually taking out money which you will be required to pay back later. But this helps in the growth of your business.
Money is required to grow your business – from the scratch or take it from one step to the other higher step. So, debt financing can help you to extend your business. But, if you would really like to extend and grow our business with the help of debt financing you will have to be aware of the fact that if not managed properly, this can lead to debt.
However, there are various advantages of debt financing. One is that the ownership of the business remains only with you. You are not required to share the ownership of your business with any other person. Thus, you will have the freedom to take the business decisions.
There are also the tax benefits. Just because you are required to make the payments agaisnt the interest rate; just as you are required to make payments against the debt as a whole, you may be able to get tax deductions on the same. These payments are listed as the business expenses and so the amount of tax you will be required to pay agaisnt the business gets lowered.