Working Capital Loans vs Equity Financing

It’s quite common for business owners to experience slow periods of cash flow in their business. Having the appropriate amount of business working capital is crucial. However in an attempt to solve this problem, many of them take drastic action and attempt to find an equity investor to raise the capital they need. This ends up being a decision which most owners end up regretting later. There are several ways to increase your cash flow without giving up equity in your business. For the long term health of your business, it’s imperative to understand the difference between working capital loans and equity financing.

Why Equity Financing is Risky and Expensive

Equity financing usually occurs when a business owner decides to sell a portion of their business in return for a cash infusion. Some companies believe that bringing on an investor is the best solution to growing their business, only to find out during the negotiation process that equity financing could actually cause them to lose controlling interest of their business. If you want an idea of what business working capital can cost through equity financing, just watch the show Shark Tank to watch people “pitch their business” to a group of venture capitalists.

Of course besides the cash infusion, equity financing can have it’s benefits. The investor you choose may bring a plethora of knowledge and expertise to help your business grow to new levels, as well as marketplace contacts and distribution networks. When you have plenty of business working capital to work with, it’s much easier to grow to levels you never thought were possible. Just be sure to negotiate favorable terms if you choose equity financing. If it’s not possible to find favorable terms, explore another option for financing such as working capital loans. 

Working Capital Loans Move Businesses Forward

While equity financing is generally a long-term decision with potentially long-term success or failure, working capital loans will help you to quickly have a positive effect on your business. There’s no risk of having to surrender your business, since you don’t have an investor to share the profits and the capital with. You can just take as much money as you need based on your working capital line of credit to help during a cash crunch.

Many businesses take out working capital loans to help fund expansion projects, pay for inventory or equipment, seasonal rushes, payroll, repairs, unexpected expenses and more. In most cases, business owners are able to pay back the working capital loans in a short amount of time once business picks up again. Having extra business working capital at any given time helps bridge the gap between busy times and slower times in your company.

Understand Short-Term and Long-Term Consequences

As a business owner, your goal should be to repay business financing as quickly as possible so the debt isn’t a long term obligation putting a burden on your business. However, even a longer term debt is preferable to the potential risks of equity financing. Remember, before making a quick decision based upon need, it’s important to understand both the positive and negative ramifications of those decisions.

Mulligan Funding has been in business since 2008 and has funded over $100 million to business owners during that time. Not only do we provide you with the working capital loans you need, but we also treat you as a valued business partner. Be sure to contact us to find out how to increase your business working capital with a working capital loan, without risking the long term health of your business!