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4 August 2017

The ins and outs of Debt Financing

Now, let's explore what debt financing, or taking out a loan, is all about. There are several types of debt financing available for small businesses, depending on their needs: Business credit cards/lines of credit: This is revolving debt. Interest is charged on the outstanding balance, usually on a monthly basis. Merchant cash advances: This is an advance against your company's future credit card sales. A percentage of these sales are automatically taken out on a daily basis until the advance - plus fees - is repaid in full. Invoice financing or factoring: In this scenario, you "sell" outstanding invoices, receiving an advance on a percentage of the invoice, minus a fee. Term loans: The business receives a lump sum for use, which is paid back plus interest on a regular schedule (usually biweekly or monthly) over a number of years.

ADVANTAGES OF DEBT FINANCING

What's so great about debt financing is that it allows you to keep all decision-making power. Once the debt is paid back, the agreement between the lender and the business is completely over. Usually, it is much faster to apply for and receive debt financing if your business has an operating history and a positive cash flow. Even if you have a low credit score, it's still possible to receive a small business loan. However, the loan's interest will likely be higher as a result.

DISADVANTAGES OF DEBT FINANCING

Unlike equity financing, most lenders require that you have a minimum number of years of operating history, and a minimum amount of yearly revenue to be eligible. By now, you should be able to spot the differences between debt and equity financing from miles away. While equity financing may be the only option if you're a brand new company, debt financing allows established businesses to keep their ownership intact. Ultimately. it's up to you to decide which one is the best choice. But hopefully, you're now in the right direction so you can clinch the funding you need to reach your growth dreams.

Chandra Credit Ltd is here to help you decide if it's debt or equity for the long run of your business, mostly it's a balanced mix of both but the pivotal is when to avail debt or equity . Contact us now for giving your business the best financial growth .

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