Debt or Equity Capital? Deciding Which Is Best For Your Business

Equity capital transactions involve an individual or entity purchasing ownership in a company. The company receives funds from the investor, and in return, the investor owns part of your company.

Debt Capital

Debt capital transactions involve borrowing money from a lender, and paying that money back to the lender over a set period of time, as well as interest.

Learn more about what private lenders are offering: Private Credit: What Lenders Are Offering

Convertible Debt

Convertible debt transactions involve a loan with the ability for that lender to convert into equity.

Typical Transaction Types

Debt

Private Credit
Asset-Based Loans
Cash Flow Loans
M&A Financings
Term Loans
Factoring
Mezzanine

Equity

Alternative Public Offerings
Self-Listings
IPO
PIPEs
Venture Capital
Private Equity
Family Offices
Private Placements
M&A Financings

Convertible Debt

Bridge Financings
Mezzanine
M&A Financings

Debt Capital

Advantages and Disadvantages

Advantages

Lender does not have vote with regard to corporate matters
No dilution
The fixed return permits a company to arbitrage between the increase in value the capital will create, and the fixed price they have to pay for that capital

Disadvantages

Has to be paid back
Is senior to all equity
May restrict actions by existing stockholders

Equity Capital

Advantages and Disadvantages

Advantages

The capital a company receives is permanent capital, and generally does not have to be paid back
Equity capital has great flexibility with regard to structure

Disadvantages

Dilution
Often used to give preferential or disproportionate rights to investor as opposed to existing stockholders
Difficult to remove or eliminate troublesome equity holders

Convertible Debt

Advantages and Disadvantages

Advantages

Fixed current return
Under the right circumstances, does not have to be paid back
Very attractive to risk-averse investors

Disadvantages

Dilution
Until converted, may restrict corporate actions by stockholders
Senior to all equity holders until converted

Let’s discuss how we can help.

We are experts at the design and execution of creative financial, acquisition, and other corporate transaction structures. We work with companies to determine the best financing structure to fit their needs, help prepare the company and its materials for financial partners, match them with the most appropriate financial partners, and work as their advisor throughout the entire process.