There are two main financing methods for corporate, debt or equity financing. Debt financing is often the type of financing you get from traditional bank loans, and equity financing is often the financing of the venture capital you get from outside investors into your business. The benefit of debt financing is that it is limited and you will repay the debt to zero balance over time without any further obligations to the lender. The decline in debt financing is that traditional lenders will carefully study your business, including how long it exists, operating income, expenses, and loan collateral requiring hard assets. In addition, the lender will definitely want you [and any other person in charge of the organization] to personally guarantee the repayment of the loan. Another disadvantage of debt financing is that your organization will assume some other types of recurring payments [usually monthly payments], depending on the terms and conditions of the financing, which can absorb key cash flows, especially small businesses.
The advantage of equity financing or venture capital is that you will receive the currency in exchange for shares in your business in the form of stocks or other forms of equity [such as revenue percentage or total sales/net sales]. The main benefit of this type of financing is that monthly payments are usually not provided to investors. Instead, you usually give up the owner's equity permanently.
For example, traditional lenders, banks, and venture capitalists have very different views. Bankers need zero-risk or near-zero risk positions when providing financing, and rely almost entirely on the operational economics of the business with little regard for "potential future growth". They want to see strong cash flow supported by hard assets before they reach a deal - most small businesses lack or they don't seek financing, right? On the other hand, venture capitalists tend to think that the potential growth of the management team and future business is more important than the actual business figures, especially for small businesses with huge potential but few sales and little or no business history. Although these two types of credits differ in the way you analyze corporate funds, you can be sure to carefully review your business...
In addition to actual business economics and formal analysis, both types of lenders pay close attention to two specific documents: Your business plan. 2. Your bank or loan application package. If assembled correctly, the two documents can distinguish between success and failure when processing the credit type.
There are a lot of free SBA related materials that tell you how to create blue chip, boiler board business plans, but they are often perfect for a business rather than an ordinary Joe. If you are looking for some type of financing for your business, I highly recommend visiting our website and viewing our commercial eBooks. We have several topics related to each other, especially the two will be the real treasures you have. One is called Power Planning [a powerful report on writing various business plans] and how to raise money for your business [teaching you how to assemble a professional loan application package]. They cost $5 each and are worth millions of dollars in the hands of the right people. I don't want to hype a product, I just give you a look up.
Financial and commercial brokers pay close attention to the secrets of obtaining financing from any type of lender for a variety of reasons. The main thing is that it forces people like you to do business with them and they earn commissions. Although SBA materials are good, in most cases there is not enough street work to get the job done. The evidence lies in the pudding - what did SBA do for you? For most people, the SBA is just another bureaucratic nightmare behind the government. We also provide some links to venture capital firms in the commercial link area on our website on the Smart Link Zone page - it's all free.
Give it some thought... Your future may depend on it.
For your success! Copyright ©2006 James W. Hart, IV. All rights reserved.
Orignal From: The difference between debt and equity financing
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