It’s a great question and an absolute must for any growing business to consider.  The benefits of offering Debt or Loans to potential investors is that you of course retain all of the equity and a claim to all of the business’ profits.  You also get to retain total control and do not have to worry about other shareholders causing problems legally or otherwise for you.

But we would take the other side of this debate, we would recommend you take on equity investors far before you take on creditors for two key reasons.  First off, with an equity offering, you do not have any interest payments or looming debt.  We can tell you that most people (including entrepreneurs) do not think as rationally and clearly as they do when they have borrowed money to make money.  People tend to make decisions more in haste and tend to hit the panic and euphoric buttons much too quickly;  Not exactly the environment for shrewd business decisions.

But even more beneficial than sound judgment are the invaluable words of wisdom and guidance you will gain from your initial investors.  These are people that want you to succeed just as much as you do.  These are also people that are accredited which means they have succeeded financially and hence have acquired tremendous experience and knowledge along their way.  Yes, you will give up a bit of control, equity, and some of your company’s profits.  But we would take ongoing free consulting and guidance over leverage any day of the week.  Remember, Leverage works great on the way up but if you don’t hit your profit goals, it will come down on your business just as quickly!