Raising Capital: Debt versus Equity

So you have a great business idea; but, you don't have the capital to attempt it. There's good news: you have many options at raising the money.

Debt: Borrow the money

You can borrow the money from family, friends, banks, angel investors, hard-money lenders. The benefit is that you are not giving up ownership of your company. The drawback is you have to pay interest and principal, as well as you likely must guarantee the loan personally. The lender may also be able to foreclose your LLC's property.

Equity: Bring in new owners

With equity, you would bring in new owners and give them an ownership interest in your company in exchange for capital. The pros are that you may not have to pay interest and there is no lender loan. The cons are that you are diluting your ownership interest and now have to share profits and possibly management with the new owner(s). Some owners will demand returns of their capital first before you get any out of the entity as well.

Both: new owners and debt

Sometimes it makes sense to follow a hybrid approach and use both debt and equity to raise capital


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