Raising Debt for your Startup

A good alternate to raising equity investment is raising debt for your startup. Raising debt has a lot to offer to startups.

Cheaper: If you calculate the return expected, debt will prove cheaper in the long run. Equity investors look for a higher IRR on their investment.

Full Control: The entrepreneur retains full control of the equity and the management of his startup. Any increase in your startup’s valuation is completely yours and not shared by equity investors.

Tax Saving: Interest payments are deducted before calculating taxable profit.

Limited Term: Debt will be paid off in a certain definite term.

These are some advantages of raising debt. However, the biggest disadvantage is that a startup may not be generating much cash flow initially and hence paying off the debt is a problem. On the other hand, equity has no actual re-payments to be made till you start making good money.

Debt is an instrument which clearly has some significant advantages and should not be overlooked when you think about raising money for your startup.