Every business has aspirations to grow at a rapid pace, but access to capital can be one of the biggest roadblocks in your journey. There are numerous avenues to gain funding, and they all come with their advantages and disadvantages. For your business, this decision can involve looking at the debt already present within the company, the expected cash flow over the near future, and your willingness to bring partners on board. If you wish to only borrow money without giving up equity, debt financing is one of the most readily available solutions for you.
Debt financing involves raising the funds you require by borrowing them from a bank or a lender. There is generally negative perception of taking on debt, but it can be an efficient tool, providing small businesses with immediate access to resources. There are several advantages and disadvantages of debt financing, but it can be an excellent funding source.
We have put together a few advantages of debt financing for you so that you can make an informed decision that best suits your business.
Tax Benefits For Your Business
Debt financing comes with several tax deductions for your organization. As it is classified as a business expense, the amount you borrow can be deducted from the income tax returns filed.
This feature alone can make debt financing far more attractive than selling equity. It is helpful to remember that loan interest is tax-deductible while shareholder dividends are not.
No Sharing Of Ownership Required
One of the most significant advantages of debt financing is the fact that you retain complete ownership over the business. When you borrow money from a lender, your only obligation is to pay the sum back in a timely, regular manner. However, when you sell equity, you may receive inputs and interference from outer parties.
When borrowing money, you establish a temporary relationship with the lender that ends as soon as the amount is repaid. That is not the case with selling equity, and you may have brought on an investor that shall stay with you far longer than you desire.
The Right Move For Rapidly-Growing Businesses
Debt financing can be a more strategic move than selling equity for fast-growing businesses. Such organizations needed constant injections of capital. Debt financing provides instant access to the funds you require without auctioning a part of your business off each time.
Paying Off Debt Helps Your Business Build Credit
Odds are, you will not require funds only at this stage in your business. By seeking debt funding at an early stage, you can showcase that your business is more than capable of paying off any sum borrowed.
As you build your business’ credit, you will no longer need to take loans against your own name or seek other expensive options. Maintaining excellent business credit establishes you as a reliable business and provides an invaluable advantage in the long run – constant access to working capital.
Debt Can Help Reduce Significant Expenses
As a small business, you may be depending on credit cards or cash advances for funding. However, such facilities often have high-interest rates linked to them. Credit card debt can often cause organizational as well as a personal ruin. With debt financing, you have a clear idea of the total amount owed, as well as the interest rate you are being charged.
Debt Financing: An Advantageous Tool When Used Strategically Under the right circumstances, borrowing money to grow your business can be the right move to make. However, evaluate all the advantages and disadvantages before making a decision. Consider other options and then decide whether debt financing is your best tool. If you do decide to borrow funds, Ruloans can be your perfect companion.