3 questions to determine if you should raise equity or debt capital

Economic instability increases in 2022, which comes with market and business fluctuations that entrepreneurs should keep in mind. Financial institutions nationwide will be stricter on money and stricter on the loans they make to customers. If you want to grow your business or dive deep into that next startup, you’re out of luck.

The secret is that if you know how credit works, you’ll learn how to access the funds you need to thrive. Having personally raised both debt and equity capital for my business, I will share some thoughts on whether equity or debt capital is the best avenue to fund your entrepreneurial endeavors.

How loan capital can help your business.

Credit is the foundation of your finances; However, it is still important to approach debt and loans with an informed strategy. In life and in business, you will eventually need to know, use and understand credit. Financial independence is the result of owning assets and acquiring investments.

For example, if you can obtain a loan of $50,000 to $150,000 at a low interest rate, you increase your cash flow while considerably reducing your payment schedule. How long would it take to earn that money independently, and how many business leads would you lose as a result? These are all things to consider when looking to take your personal or professional wealth to the next level.

Are you comfortable with the idea of ​​bringing in a partner?

Equity is a reliable option for increasing cash flow within your business, but there is a catch. Often you are giving up your business, a percentage of ownership, or control over business decisions. Losing your business autonomy and rights can come with significant downsides, especially if you enter into a deal without a solid foundation of knowledge and negotiation skills.

If you’re collaborating with an associate, it’s a major decision, similar to signing a marriage license. For example, if your partner is more industrially, financially and commercially educated, the scales can quickly turn against you. It’s always important to pay attention to your partner and take appropriate steps to create clear boundaries. In business, you don’t always know who you’re dealing with, so don’t let excitement or “too good to be true” deals get you down.

Are you positioned to grow your business?

If you can acquire low interest rates, it is always better to earn capital for yourself. On the other hand, remember that not all debt is good debt. High interest rates won’t save you money in the long run. You create extra expenses and work if you can’t save more than you borrow.

Tyler Bossetti, running 0 percent lends capital to hundreds of individuals and business owners. He recommends that before going into debt, make sure you are able to increase your profits with the money. The last thing you should do is use debt capital to start a risky business that has no proven track record.

It should either be saving Where make you more money; otherwise, you put yourself in a risky financial situation.

Can you build trust with investors?

Reputation is just as crucial in business as it is in everyday life. Building credibility and investor confidence is essential if you want to see opportunities open to you. People need to know you, like you, and believe you are reliable.

Don’t be afraid to put yourself forward and put your name in front of more eyes. Networking and social media are great ways to do this. Create authentic content that captures attention and makes people care about your mission.

Credibility is built on proven results, a positive track record, and thorough preparation. Even if you’re starting from scratch, don’t underestimate the importance of educating yourself and presenting your business plan with professionalism, drive and resourcefulness.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.