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Why Debt Financing Companies is Better Than Giving Up Equity

By J Steyn

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September 6, 2023

We’re going to come right out and say it – in most cases, debt financing companies is better than giving up equity in order to fund them. 

Why? Debt is cheaper, and it doesn’t erode the control you have over your company (and, therefore, your life). 

Equity financing is not the ideal fit for an entrepreneurial mindset. Here’s why.  

At first glance, equity financing seems like a dream. Businesses stand to gain valuable experience and expertise as well as much-needed capital to finance their operations and expansion. All they have to give in return are some stakes in the company. So, what’s the big deal? 

Well, depending on why you started the business in the first place, it could be a huge deal. Most entrepreneurs leave their traditional jobs and start their own businesses because they want a greater degree of control over their working lives. Many business owners seek the freedom to pursue their passions and work by their own schedule, not somebody else’s 9-5. You know what they say – if you do what you love, you’ll never work a day in your life. Because you’ll be working nights and weekends, too. 

Jokes aside, the freedom and flexibility that entrepreneurship affords those who are brave enough to pursue it is a big draw. But when you offer up equity to another stakeholder, you’re not just sharing a slice of the pie – you’re giving them the recipe. And you might not like the changes that they make to that recipe. 

In case the pie analogy didn’t land (was it…half-baked?), let’s explore this in plain terms. Once you bring another stakeholder on board – especially one who holds the purse strings – you have someone else to answer to. Giving up even a little bit of ownership means relinquishing control over the direction of the company and potentially compromising on your original vision for the business. It could also mean agreeing to terms and conditions set out by the equity stakeholder that are not favourable to the company or its founder(s). Finally, giving up equity could also mean giving away future profits from the sale or IPO of the company. 

For many business owners with an entrepreneurial spirit, these concessions contradict their preferences for freedom and autonomy in their working lives. 

Debt financing companies are also cheaper than using equity financing 

In addition to facing the possibility of making some serious compromises, entrepreneurs who decide to use equity financing to fund their companies are facing higher financing costs. 

We explain why equity is more expensive than debt financing in much more detail in this article. It’s an excellent resource for business owners who are weighing up the cost of debt financing companies vs. equity financing – if we say so ourselves. In a nutshell, though, the reason that equity financing is generally more expensive than debt is that equity investors expect higher returns for the risk that they take on by investing in your company. 

The benefits of alternative debt financing companies 

So, where does that leave you? If you’re a business leader, you might feel stuck between a rock and a hard place. Equity funding tends to cost more and require a greater sacrifice of control, but traditional debt financing is time-consuming and complex. Everywhere you look, you’re faced with pages and pages of application requirements, countless application and account fees, long queues, and up to months of waiting on an outcome of your application. 

The reality is that most SME leaders need funding now, without having to sacrifice their entrepreneurial autonomy. So, what’s the solution? 

Well, even if equity funding isn’t something you’re willing to settle for, that doesn’t mean that you should abandon alternative financing altogether. Alternative funders like Bridgement can give your business access to financing 30 days faster (on average) than traditional funding sources and at a fraction of the cost of finance associated with equity finance. 

After completing our online application form in two minutes, you could have access to up to R5 million in business funding. The best part? We won’t tell you how to run your business. We’re just here to simplify business finance. 

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