There are many options to choose from loans, equity and Convertible Notes. When it comes to raising capital for your company. Here are three ways in which you can bring in capital for your business.
One way of raising capital is to offer equity in exchange for a cash investment. Equity involves giving away a share of your business. All the investors with equity in your company will have ownership on it. The level of equity for investment depends on the value of your business. You will also need to decide the rights you give to equity holders.
With a loan, your business borrows the capital from another person or entity. Lenders typically charge the annual rate and calculate a percentage of the original borrow. When you invest loans, be sure to look at whether the interest is simple or compounded. You should also check whether the loan is guaranteed or nonguaranteed. Also, know the period of time when to make the payment. Be aware of these different components to make a well-informed decision before acting.
Convertible notes are the middle ground between loans and equity. With convertible notes, you borrow money from investors with a loan. At the end of the loan period, investors can decide whether they’d like to have their principal returned or convert their investment into equity. Convertible notes have seen a sharp growth in popularity in recent years. The legal costs associated with them are significantly lower compared to the other options. Investors earn interest during the start-up phase and can choose to walk away rather than invest long-term if the business performs.