Reasons To Hire a Business Financial Advisor

Posted by transworldma on June 14th, 2023

Operating a business requires attention to detail and continuous change of strategies to experience growth. Raising the capital necessary becomes essential when one wants to expand and be at par with the closest competitors. Exploring all options and acquiring knowledge about debt & equity financing, in particular, is essential. These are two principal funding methods that work for businesses of every capacity. Choosing between them is not always a need, though. Instead, one can use both types of funding as required to take the business to the next level.

It is important to know the meaning and purpose of both financial options and be knowledgeable about the necessity and the benefits associated with specific types of financing. Some of the things that have to be learned include the following:-

Debt Financing

This is a simple process of borrowing the required sum from a lender and injecting it into the business. The amount is repaid over time with interest and fees according to the terms & conditions. The interest rate may vary from time to time or remain fixed as decided by the lender.

This type of funding can be of various forms, including:-

· commercial mortgages

· asset financing

· business loans

· working capital facilities, namely overdrafts & invoice finance

The debt can be secured against an asset of the borrower or be unsecured as well. The lenders are most willing to provide the funding when it is secured by an asset. This reduces the risks for the lender.

Equity Financing

Selling a portion of the business equity to the lender in exchange for funding is known as equity financing. While this may seem problematic yet the borrower is pleased to see that it involves no repayment. The lender or the investor claims a business share instead. The accumulated profits from the equity share can enable the investor to recover the sum by selling shares. This process ensures a good ROI preferred by a majority of lenders.

The question of choosing one over the other depends on several factors, including the business circumstances. There is no right or wrong type of funding, as both come with distinct pros and cons.

Some of the reasons to opt for debt funding are:-

· Get a reliable cash flow to further an existing business model

· The business owner wants to be in charge

· The obligations will be short-term, with the lender-borrower relationship terminating once the debt is repaid

· The repayment sum is known in advance, causing the borrower to strategize and budget efficiently

· People seeking equity financing find it beneficial for the following reasons:-

· There is no asset to put up as collateral with the financial history being restrictive

· There is no pressure to repay the loan

· A greater sum can be raised from the equity that comes in handy for business expansion

A business entity is free to use a combination of both debt and equity to obtain the required funding. It makes sense to make the right decision by consulting an experienced business financial advisor who is well aware of business complexities and can provide the best solution.