Before you look to investors for funding, consider the benefits of debt to grow to your business.
If your business needs an infusion of cash to grow, it may be tempting to take on new investors or ask for additional funding from your current backers. But doing so dilutes the equity you’ve built, which means a smaller reward in the end—or even loss of control of your business.
Debt can be a smart and effective way to finance your business without giving up equity. Here are four ways that borrowing can actually help you grow and manage your finances wisely:
- Borrowing is often more cost-efficient in the long run. You may be surprised to learn that giving up equity is nearly always more expensive in the end than taking on debt. Don’t sacrifice future profits for a short-term need. Even once you factor in interest costs associated with borrowing, that cost is temporary and finite—and you protect your equity.
- If the opportunity is right, debt is often the best strategic choice. Whether you’re short on capital to buy inventory for your boutique or supplies for your construction business, taking on a little debt can help you make a big profit. Ask yourself, “Is the return from this investment higher than the cost of the debt?” If the return is higher, then taking on the debt is likely a wise choice.
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