Not all sources of funding are the same

With so many ways to finance the growth of your business, the path isn't always clear. At KDV, our business consultants help you look at your financing options, either equity or debt, and compare that to your situation and how your industry is doing in order to help you find the right combination of financing to keep your business growing.

There are two types of financing: equity and debt financing. When looking for money, you must consider your company’s debt-to-equity ratio which is the relation between the dollars you’ve borrowed and the dollars you’ve invested in your business. The more money you invest in your business, the easier it is to attract financing.

If you have a high ratio of equity to debt, your best option is to seek debt financing. But if you have a high proportion of debt to equity, you should increase your equity investment for individual funds.

What is equity financing?

Equity financing can come from non-professional investors during the growth stage of your business. Typical non-professional investors are:

• Friends or relatives
  
  
• Employees or customers
  
  
• Industry colleagues
  
  

However, the most common source of professional equity funding comes from venture capitalists that may be comprised of groups of wealthy individuals, government assisted sources or major financial institutions.

What is debt financing?

Debt financing tends to be more for the short-term loans for the purchase of equipment, establishing seasonal lines of credit and demand loans. The most common sources of debt financing are:

• Banks and savings & loans
  
  
• Commercial finance companies
  
  
• The U.S. Small Business Administration
  
  

Some things to consider when looking for financing:

• Do you need the money to expand your business or do you need a cushion against risk?
  
  
• What are your business risks? They could affect the type of financing you can get.
  
  
• Any lender will want to know what, exactly, you are using the funds for.
  
  
• How is the health of your industry? If you are prospering while your industry is floundering, you have a better chance at financing.
  
  
• Do you have a strong management team?
  
  
• Do you have a business plan for how to use the funds?

To find out more about how to structure the financing for your growth, please contact one of our business experts.