There are several companies that do not have to seek for financing for their business. For example big tech giant called Apple. Mid cap companies have the need to search for a short term solutions to finding finance to solve shortages. You need to be careful when you borrow money. When you take a loan from the wrong source you might loose parts of your company. Then you might be paying your hard earned money constantly to payoff the finance company. There are many ways to find a finance company for your business. With debt financing you have to pay monthly untill the debt is payed off plus the interest. Equity financing is for investors and finance companies who own a stake in your company.
Debt financing.
It is when you want to buy a building to start your business and you need a mortgage. Or you need a car for your account manager. Then you can go to the bank and fill in the application to apply for a financing either for a mortgage or a car. Businesses what have more complicated business structures will take more factors that will be considered to get approved for a loan. Such as the credit history. One of the debt financing is that the finance company do not hold any stake in the company. The finance company will set an interest rate and paying terms. The relationship ends completing all the paying terms. You can be sure that your interest will be deducted from the tax income bill.
Equity financing.
Equity financing consists of angel investors and venture capitalists. Venture capitalists are rather a firms than an individual investors. These firms have accountants, lawyers and partners who research the pitch deck of the businesses which ask for financing. It takes time to realize equity financing because it a complex structure for those firms that lend money. Angel investors are wealthy individuals who are not willing to build a business but like to lend money if they believe in the products of the finance taker. If you are an app developer and want to borrow relevant small amount of money to scale your business. Then angel investors you can turn to. One of the advantage of equity financing is that you do not have to payback the money once your business ends up in bankruptcy. The investors are patially the owners of the buisness you own. They are investors and not lenders. So there are no monthly payments you have to pay. One of the disadvantage is more riskier the investors find investing in your business is more stake they will be demanding.
Mezzanine capital.
This is a whole another concept then debt or equity financing. With debt financing you pay a certain interest and monthly payment amount. The lender is looking for less risks and more total financial advantages. The mezzanine investor is not looking for piece of your business. Mezzanine is a combination of debt and equity financing. There is no finished structure to this type of loans. The debt capital will convert to equity interest when the loan is not payed on time. One of the advantages is of the mezzanine capital is that the lender will be easy to convince of your successes once they see the last 3 years of your sales records, costs and cash flow. New businesses will be have a hard time to convince the successes but once you as a borrower is willing to give up stake you will have a chance. The disadvantages are the interest is higher and if the lender finds your company a risky investment. They will ask 20% to 30% of the return on their investments.
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