20/02/2025
Top 5 reasons why debt is better than equity.
1. No dilution of equity: While equity may have advantages of its own, however dilution of equity is painful for any founder. Creating a successful venture consumes alot of hard work. Giving away equity may not be fruitful in the long term. Debt finance never demands any equity.
2. No interference of debt investor: Under debt financing, the investor's interest lies only in the interest earned and timely repayment. Investors don't have any interference in the strategic decisions and operations of the business. The relationship with the investor/ lender ends once the loan is paid back.
3. Minimal Compliances: Equity funded companies have to go through many compliances and audits required by investor. The interest paid on debts have limited compliances required.
4. Equity can be expensive than debt: While debt has a real cost to it ie, interest. But equity comes at hidden costs- the financial returns shareholders expect. The profits shared with the equity investor can be a huge cost compared to cost of acquisition of debt capital.
5. Tax Savings: More tax you save more money you make. Interest on the debt can be deducted on the company's tax return, lowering the actual cost of the loan to the company.
Debt Finance options:
1. Unsecured business loans
2. Secured business loans
3. Government schemes
4. Invoice Discounting
5. Venture Debt
If you wish to explore debt financing options for your business, write to us at [email protected] or leave a message in the comments section.
