Should you finance your business with debt or equity? Paul Quintero, CEO of Accion East, explains the advantages and disadvantages of both options.
The advantages and disadvantages of debt and equity. If you have a business that is already generating cash flow and doing so on a, on a regular enough basis, then debt is going to be your best option because debt only requires a return of what was lent to you plus some interest. Equity, on the other hand, is advantageous for businesses where, at least in the early stage, you aren't going to be generating positive cash flow, you need that equity to help support you through that period as you're building up and getting to the cash flow positive area. And equity's biggest advantage is that – you don't have to repay it, at least in terms of as an obligation, but the disadvantage to equity is it is unlimited upside. So once you break past that cash flow point, every dollar that you generate in that business will go to those equity owners depending on how much ownership you provide. To give a simple example, if someone invests in half of your new business, half of all the profits or cash flows that you generate when you do generate them, will go to that partner. So to the extent that you feel that that is too rich a price to pay for some funding up front, then that's probably the biggest minus.