Why Borrowing Money Is Better Than Giving Up Equity

1. Paying interest on debt reduces tax burden.

Many entrepreneurs aren’t aware of this surprise benefit of borrowing. The cost of interest reduces your taxable profit and, therefore, reduces your tax expense. Also, Equipment Financing gives you the benefit of a Section 179 tax deduction.

2. Debt can be cheaper than your opportunity cost.

If the opportunity is right, debt is often the better strategic choice. You can profit from debt and open up new growth channels. Here’s the key question: “Is the return from this investment higher than the cost of the debt available to me?” Whenever the return is higher, the debt is worth it.

3. Debt is usually less expensive than giving up equity.

Equity is almost always more expensive in the long-run than taking on debt – especially if your financial need is short term, seasonal or connected to working capital. Equity costs you a portion of your business and its profits, forever.

4. Debt encourages discipline.

This is common knowledge among private equity firms, but is something that small businesses generally overlook. Debt brings with it a discipline about spending and investing that can help your company, especially in its formative and growth years.

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