Debt Vs. Equity Funds

Two main categories are there in context to business debt consolidation companies funding: Debt Funding and Equity Funding. Both these options of finance have their merits and demerits, making it easier to find one fitting your business in the best ways.

Debt Funding

This has reference to money borrowed through Debt Relief Plans and to be repaid over a time period, normally this is re-paid with interest. Debt funding can be either short term or long term. Short term debt funding refers to the whole repayable amount within a year. Whereas long term debt funding refers to reimbursements going beyond a year’s time period. With debt funding your only liability to your creditor is to reimburse your loan.

Merits:

• No need to surrender your business’ ownership/future profits from Debt Help USA. No control is held by your creditor in the running of your business.

• Making use of borrowed money for getting your business assets will let you maintain your business profit in the company implies you can make use of this gain for paying a return to the owners of the firm.

• Tax deductible interest.

Demerits:

• Impairment of your credit rating

• Having a lot of debt means all your hard earned profit will be gone in the reimbursement.

• Sufficient cash flow requisite in your business for reimbursing loans.

• Risky Loan = High Rate of Interest

• Collateral requisite for loan security, which is seized if debts are not reimbursed.

Equity Funding

This has reference to the money swapping for a business share. You are allowed to acquire funds for your firm sans incurring any debt. Equity sale implies taking on investors. Equity is raised by many small businesses by bringing in investors for making their business prosper and obtain a return on investment. There are two main types: Business Angels and Venture Capitalists.

Merits:

• No need to reimburse your investors Credit Relief Programs, even if your company is going insolvent.

• No pledging of business assets as collateral to acquire security.

• Businesses having sufficient equity will be looking better towards creditors, investors, etc.

• More cash availability due to not having to make debt payments.  

Demerits:

• Ownership as well as businesses profit share relinquishing to other investors

• Other owners having diverse ideas beyond yours in the running of the businesses

• No tax deductibility on disbursements to investors in C-corporations.

Conclusion

The low risk profile debt funds seek towards generation of fixed current income (and not capital appreciation) to investors. As compared to other types of funds, equity funds are considered to be the more risky funds, but they even proffer higher returns beyond other funds.