You may need financing for short or long-term purposes. Most short-term loans mature in a year or less. Short-term loans include lines of credit (the option to borrow modest sums on short notice for a short time), which give you access to working capital (money that helps you run your business when cash flow is low).
The value of the assets purchased and the company’s ability to repay may affect the loan repayment period. Long-term loans are generally repaid between one to seven years, and are usually given for major business purposes, such as the purchase of equipment or inventory.
Even if you have enough money of your own to start your business (personal assets), eventually you will probably need to borrow money (debt financing) or sell an equity interest in your business (equity financing) to make your company grow. These different types of financing may have tax advantages and disadvantages. You may wish to consult a professional tax adviser, such as an accountant, about your options.
Over the next week, we will dive deeper into the differences between using your personal assets, debt financing, equity financing and alternatives to these traditional methods.