DEBT FINANCING
An Ideal Tool To Raise Funds For Your Idea or Startup
Debt is basically the state of owing money to someone. Entrepreneurs and aspiring entrepreneurs often end up taking this route of funding because they have not been able to secure venture funding against equity in the startup. The debt can be secured from a bank, or a non-banking financial institution or from lenders under an agreed arrangement of repayment and reward which is usually a percentage for providing the debt.
Taking on debt to finance an idea or a startup is beneficial to the entrepreneur as he/she retains the entire equity stake in the startup, and additionally has the freedom to operate his/her startup as planned. Venture funding entails parting of some equity and some decision making in strategy and operations in the startup, which may be demoralizing in many cases.
Besides formally approaching a bank or a non-banking financial institution or a lender for borrowing debt, entrepreneurs can make use of the opportunity of using credit card limits to finance their ideas, provided they are able to repay the credit card issuing bank in time to avoid hefty interest rates and penalties. This approach is easier as no time is wasted in securing the borrowing, it requires a simple swipe and pin authorization. Entrepreneurs also have the option of converting the credit card transactions into small loans payable in equal monthly instalments, within a given time frame of the billing cycle. The interest rates are usually on a higher side but the process is far more convenient, often activated over a phone call or even on the app in ones smartphone.
As compared to venture funding, debt is a better financing option for entrepreneurs and for those aspiring to become entrepreneurs, but many are still fearful of taking debt and hence prefer knocking the doors of venture funding that open for less than 3% of the entrepreneurs pitching their ideas or startups. Infact credit card debt can be an excellent funding mechanism for entrepreneurs and aspiring entrepreneurs to test their ideas, get the ball rolling, than to waste time behind pitching to venture capitalists for funding their idea or startup. Most people are happy to go into credit card debt for all the expense related stuff, stuff that will not generate revenue or income for them, and fail to realise that the same credit card debt can be a great enabler of ones entrepreneurial dreams or goals.
Concluding thoughts on taking the debt route for funding ones idea / startup / business is that although it may be easier to obtain than equity funding, it demands collateral of some sort and repayment of it with the agreed interest on the loan, hence one must not take it lightly and ensure 100% efforts in efficiently utilizing the debt for the given requirements, make a return of it along with some handsome profit for self and the lender.
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