Debt vs. equity financing: which fits your business?

Borrow, or sell part of the business?

Debt keeps ownership and control, but payments are due even when revenue disappoints. Equity can fund growth without scheduled payments, but shares future value and decision rights. Neither is automatically cheaper — it depends on terms, valuation, risk and your ability to generate cash.

A hypothetical $750,000 choice

Debt: $750,000 over 7 years at 9.50% is about $12,258 a month ($147,096 a year), plus fees, covenants and possibly collateral and a personal guarantee. No dilution.

Equity: $750,000 at a hypothetical $3,000,000 pre-money valuation gives the investor 20% ($750,000 ÷ $3,750,000). No loan payment, but investor rights, preferred returns and exit terms can change the economics a lot. Neither is an offer or a valuation opinion.

Five questions before choosing

• Is the business generating cash today?
• Could you still make payments in a down year?
• How much control do you want to keep?
• How quickly will the investment produce cash flow?
• Could retained earnings, supplier terms, leasing, phasing or seller financing shrink the amount you need?

The better question

Instead of "which is cheaper," ask which structure keeps the business solvent in a bad year, fits the investment's timeline and preserves enough upside to justify the risk. Review actual terms with qualified legal and financial advisers. Profit Theory does not offer securities or solicit investors.