Debt vs Equity

A lot of people will try to tell you that all debt is bad, but this is not the case. There is debt that makes you richer, and debt that makes you poorer. Good debt will make you richer and richer and poor debt will make you poorer and poorer. Just to make sure that you know the difference. Good debt is debt that allows you to buy an asset that puts money in your pocket every week. Bad debt is debt that takes money out of your pocket every week.

So you’ve just sorted all your ideas, hopes, predictions and forecasts out and turned them into your business plan. You’re now ready and armed to pursue some business funding. So what business funding is available to you?

There are two main categories that you need to know about when it comes to business funding; Debt Funding and Equity Funding. Both of these finance options have their advantages and disadvantages; making it easier to find the one that fits your business in the best ways.

Small, or new business owners may not fully understand what the differences are, and some, new to the business financing realm may not even know what equity financing is. The term equity is bandied about in personal loans regarding the value of assets versus outstanding loan amounts placed on it, and equity is acquired much the same way in businesses. However, equity lending is not done on a personal level so understanding how the equity can be used to fund a business is something all newcomers should understand.

So, what exactly is financing and who does it? Well, equity financing is not really financing at all. It is the sale of pieces of ownership in the business to drum up money. For most small businesses, this means tapping into the bank of Mom & Dad as well as lightly twisting the arms of friends. For businesses with bigger ideas, angel investors or venture capitalists can also be sources of funding. The primary issue to keep in mind, however, is once that equity is sold off, the business is no longer “yours”. It is owned by a group and a group that wants to make a profit.

Risk Vs Reward

Its important to understand the risk that is inherent with investing in stocks. There are no guarantees or obligations. Some companies will pay out a dividend, while others will not. There is no obligation for a company to pay a dividend, or even increase a dividend. If there is no dividend paid out, then the only way for an investor to make money is through the increase in share price on the stock market. If the shares decrease, the shareholder value is lowered. If the company goes bankrupt, your investment is worthless.

There are plenty of free SBA related materials that tell you how to create blue-chip, boiler plate business plans but they tend to be written for perfect businesses and not the average Joe who is less than picture perfect. If you are seeking some type of financing for your business I strongly suggest that you visit our site and check out our business e-books. We have several that cover a variety of topics and there are specifically two that will be a real treasure for you to own. One is called Power Planning (a powerful report on writing a wide variety of business plans) and How To Raise Money For You Business (teaches you how to assemble professional loan requests packages). They are priced at $5 each and can be worth millions in the hands of the right person. I am not trying to hype product, I am simply giving you a heads up.

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