Choosing debt vs. equity
Debt preserves ownership but requires repayment with interest, while equity dilutes ownership but doesn’t require monthly payments. The right choice depends on growth needs, cash flow predictability, and control preferences.
Consider debt when:
- You have predictable cash flows to service repayment
- You want to avoid dilution
- Growth requires a fixed, short-term capital injection
Consider equity when:
- You need large capital to scale quickly with uncertain near-term cash flows
- You benefit from investor expertise and networks
- You prefer not to add fixed repayment obligations
Practical decision steps
- Model cash flows to see if debt payments are affordable.
- Evaluate how much ownership dilution you’re willing to accept.
- Consider hybrid options (convertible notes, revenue-based financing).
Closing thought
Match the instrument to business reality: use debt to amplify stable businesses, and equity to fuel high-growth, capital-intensive scaling where repayment risk is higher.