Debt Financing: Definition and Examples

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What Is Debt Financing?
How Does Debt Financing Work?
Pros and Cons of Debt Financing
Pros of Debt Financing
Cons of Debt Financing
Debt Financing Examples
Traditional Loans
Online Loans
SBA Loans
Short-term Business Loans
Business Line of Credit
Should You Choose Debt Financing for Your Small Business?
Your company is in its early stages. If your business is young, you likely won’t have access to equity financing. Not only that, you probably wouldn’t want to give away a large chunk of equity early in your business’s lifespan. Instead, consider ways to bootstrap or qualify for debt financing that make sense in your industry.
You have temporary cash flow issues. Debt financing can be a useful tool in getting over short-term hurdles. This is especially true if your business is seasonal or has a temporary issue that you feel confident will resolve itself soon.
You don’t need to borrow a lot. If you don’t need a huge investment, different debt financing structures can help you obtain a smaller amount of financing. That way you’re paying interest only on funds you actually need.
You need capital quickly. There are various forms of debt financing that get funds in a business bank account much faster than equity financing or most other alternatives. Focus on online options if you’re truly strapped for time.
Alternatives to Debt Financing
The Takeaway
About the Author
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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