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When you think about doing any business, the first thing that comes in mind apart from a business idea is the need for finance i.e. money available to spend on business needs. Once the business grows there would be certainly greater demand for more money to finance the expansion of the business. The day to day running of business also needs money.
Manthan team is fully committed to guiding in choosing you the Right Source of Finance and will Act as a mediator between investors and you.
There are two main types of business finance i.e. Equity finance and Debt finance. Broadly speaking, Equity financing is capital exchanged for part ownership/shares in the company, and Debt financing is funds borrowed from a moneylender and repaid with interest.
What is Debt Funding?
Debt funding is the process in which an investor lends money to an entrepreneur for their business needs for a certain period at a given rate of interest. The startup has to pay the debt fund back on a pre-scheduled date along with the interest payment.
Interest is a pretty high rate in case of startups, to compensate for the risk of business failure and the business loan is provided against the company or startup’s assets as debt securities. So, in case of non-repayment, business failure, or bankruptcy of the startup, the investor or the bank can recover money by seizing assets.
Major Options Available in Debt Funding
What is Equity Financing?
Equity Financing, on the other hand, doesn’t require the startup to pay back the money invested. However, equity funding requires the startup to part with a large piece of equity, which the investor acquires against the funding they provide and this gives them ownership and a place in the board of directors of the startup which means they would take part in business decisions they shall contribute to business capital, share risk and participate in profit sharing.
This is where debt fund differs; here, the investor only gets the loan repaid with interest and therefore has no right to interfere in the business. Thus, the founder can freely run their startup the way they like.
Major Options Available in Equity Financing
Manthan will guide you in choosing between Debt or equity or its best ratio, for which analysis of various factors would be required such as:
- Amount of money required
- How quickly the money is needed
- The cheapest Option Available
- The amount of risk involved in the reason for the cash
- The length of time of requirement for finance.