An article in the Globe and Mail does a good job of summarizing the different avenues that small businesses, especially newly established companies, can go to gain financing. The options are either Debt or equity.
Equity financing can be tricky for a small business, especially one where the entrepreneur doesn’t have a lot of experience in raising capital. Valuation and control of the company can both tricky covenants to navigate, even for seasoned professionals. It might be enticing to take on an equity investor where you don’t have to worry about monthly payments and interest but in the long run, raising equity can cost you a lot more than taking on some short-term debt.
When raising debt, a borrower has to realize that most lenders are not looking at your story, they are looking at your assets. The assets on your balance sheet give the lender an idea of the value of your company might be in a recovery process. The easiest asset to borrow against are your invoices; these are short term and if they are confirmed and validated correctly, basically like cash. Invoice financing is a very popular way to tap into the assets of your company and borrow to smooth out your cash flow or invest in growth.
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