The main advantage of debt financing is that a business owner does not give up any control of the business as they do with equity financing. A lender is entitled only to repayment of the agreed-upon principal of the loan plus interest, and has no direct claim on future profits of the business. Advantages of Debt Financing Debt financing allows you to have control of your own destiny regarding your business. Advantages of Debt Compared to Equity Because the lender does not have a claim to equity in the business , debt does not dilute the owner's ownership interest in the company. Cash flow: Equity financing does not take funds out of the business. Before obtaining an office or storefront, buying and leasing equipment, and furniture, or hiring staff, the owner will need to decide how to raise the required capital. The chief advantage of borrowing money as opposed to accepting money from an investor is that the lender only wants to get its money back. You do not have investors or partners to answer to and you can make all the decisions.
When starting a business, most entrepreneurs don't have all the capital needed to run. Debt financing is nothing more than borrowing money. You own all the profit you make. Debt loan repayments take funds out of the company's cash flow, reducing the money needed to finance growth. Unlike an equity investor, a lender doesn't have an ownership stake, so it doesn't have – nor does it usually want – any say in how you run your business.
There are two types of financing, debt financing, and equity financing.