Capital refers to assets or cash required by a business to provide goods and services to its customers. All businesses need capital to stay afloat. Business owners who lack capital will often to turn to equity capital or debt capital. They can each provide additional funding but they both are very different from one another. Read on to learn what debt capital is and much more.
Debt capital refers to fund or assets generated by borrowing from a lender. A business owner takes on debt to get capital. For example, conventional bank loans are debt capital.
Most business owners prefer debt capital over equity capital because they do not have to give up their business ownership. The downside of debt capital is that it can be more challenging to secure. New business may struggle acquiring debt capital because banks typically hesitate to finance a business that is lacking in their track record.
Business owner do not take on debt in equity capital. Investors purchase partial ownership in the business (equity) and the owner does not have to repay.
It is easy for businesses to acquire equity capital. Those businesses that are struggling to obtain traditional debt capital will look into obtaining equity capital. The downside of equity capital is that you need to forfeit part of your business and most small business owners do not like this.
Pros of Debt Capital
The following are some benefits of having debt capital:
Cons of Debt Capital
The following are some cons of having debt capital:
Business credit cards offer owners a line of credit easily. They carry interest charges if balances are not repaid in full similarly to a normal credit card.
Pros of Business Credit Cards
Cons of Business Credit Cards
Microloans are easy and small to obtain for small businesses. They are offered to businesses that require capital to begin or run their operations.
Pros of Microloans
Cons of Microloans
SBA microloans are the most popular type of debt capital and can give up to $50,000 in funding. You need to just why you need the capital and the amount to qualify. You also need to show that you are trustworthy and are capable of repaying the loan.
Pros of SBA microloans
Cons of SBA microloans