The financing dilemma every entrepreneur faces: debt’s discipline vs. equity’s flexibility. Debt financing (loans, bonds) preserves ownership but requires regular repayments—U.S. small businesses carry $1.2 trillion in debt (Fed Reserve 2024). Equity financing (angel investors, VC) trades ownership for capital and expertise but dilutes control.
Decision factors:
Metric | Debt | Equity |
|---|---|---|
| Cost | 6–30% interest | 10–50% ownership |
| Risk | Collateral required | Investor expectations |
| Best for | Asset-heavy businesses | High-growth startups |
Hybrid models like convertible notes (debt→equity) are gaining traction. SaaS companies often use SAFE notes, while manufacturers prefer SBA loans. Always model scenarios: What if sales drop 20%? Can you still service debt?