1. Which Is Better for Your Business: Debt or Equity?

    Which Is Better for Your Business: Debt or Equity?
    From Ken Kaufman: Is debt or equity better for your business? The answer depends on several criteria, although the stage of the business and the use of the funds are usually the best determining factors.   Pre-Revenue   This is the stage of a business before you have paying customers. Equity is almost always the better way to fund a business in this stage because debt causes three main problems. Consider this example: Let's assume you receive a $100,000 SBA loan to start your business. You receive terms that include a 6 percent interest rate, a monthly payment of $1,933 for five years, and you have to put the equity in your home up as collateral to secure the loan.   Problem #1 — Since the business has no cash inflow, you will have to use the proceeds from the loan to service your debt facility at a rate of almost ...
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