Should my business raise debt or equity?
From our experience, equity is usually the better option for early-stage and growth-focused businesses, as interests become better aligned between the entrepreneur and investors.
By nature, these types of businesses involve a lot of risk and are more likely to fail than succeed. If a business raises debt and fails, lenders can still insist on repayment and entrepreneurs may have to pay them back personally. And even if the business succeeds, lenders usually want to be repaid fairly quickly, leading to situations where cash that could be used to grow is taken out of the company in order to repay lenders.
Raising equity capital, however, allows businesses and their investors to share the risk, so founders dont end up personally financially liable if the venture fails, while the investors are more interested in growth than a quick return of capital. Once a business has successfully grown and is no longer considered as risky a proposition, debt financing can become useful for expansion or working capital needs.