Debt Capital to Finance Your Business
August 27, 2020 | Finance | No Comments
For many founders, financing their business is the first major hurdle because they do not have enough equity themselves. But this must not be an obstacle, because the debt often makes the bulk of the financing of a company and therefore represents an important second pillar. This is to fund you to a fixed-term borrow from lenders, such as by
- Your house bank
- Microfinance institutions
- Promotional banks
- Online loan exchanges
The borrowed capital must be paid back with interest. It describes the debts of your company that arise from liabilities or provisions. Bringing in outside capital makes sense if the costs arising from the use – such as interest costs – are lower than the expected benefit from your business venture. Hence, the debt should be used to:
- the working capital fund
- to cover long-term capital investments in combination with equity
Note that lenders require collateral from you in order to be able to extend a loan.
Pros and cons of debt financing
The advantage of debt financing is that, as the founder, you retain control and co-determination rights over your company and thus also the profit. In addition, there is a tax advantage for you in that you can claim the interest payments for tax purposes.
The disadvantage of debt financing is that you can only obtain debt for a certain period of time. You must have paid off the loan after the term has expired. In addition, you are also obliged to meet the agreed interest rates and repayment installments, even if your company should get into financial difficulties. Some people tried their luck in the game of chances sites such as qq online to earn extra money in order to pay off debts.
Debt / Loans
You should use borrowed capital for larger investments in tangible assets, such as the acquisition of fixed assets such as machines, buildings, systems, tools, and other work equipment or the acquisition of patents, licenses, concessions, etc. The borrowed capital is repaid for a fixed term and a defined interest rate. You can obtain outside capital in the following form:
- Current account credit
- Working capital loan
- Investment loan