Different ways of raising money for business
If you are running a small business and you wish to raise a large amount of money without going for a loan, then you got 2 choices in hand. You can either sell bonds or sell stocks. Selling stocks allows the investors to buy the shares of the organization which allows them to actually own a piece of the business. Selling the bonds means borrowing funds from the investors and then paying interest to the investors. Each method works different and it would have different consequences in running and growing the business. If you are looking to raise a quick amount of money, you can even try out online trading of cryptocurrencies using bitcoin loophole.
Pros of selling stocks
If the business does not have a good credit rating, it would be quite difficult to raise the amount you require. Instead, you could opt for selling the stock. This method of financing is best if you are a start-up and does not have any track record. You could easily attract the investors on the basis of your potential growth. It gives you an advantage of not having an obligation to repay the amount.
Cons of selling stocks
By selling stocks of the company you are making the investors a part of the business and this means you need to answer for all the actions taken by you to shareholders. They have the right to demand justifications and explanations for the business decisions. You will have to share all the information even if you don’t wish to do so. You might also have to pay a dividend to the shareholders.
Pros of selling bonds
Whenever you sell bonds, you agree for payment of interest and this interest paid is tax deductible for the organizations. The bondholders do not participate in decision-making neither they own business. Bonds give you the advantage of letting you borrow money only for a particular period you need the money. You could keep the term of bonds as short as you wish so that you could limit the interest amount you need to pay.
Cons of selling bonds
In the case of bonds, you need to pay the interest payments. It is different from dividends as the dividend need to be paid only if you declare it. But the interest needs to be paid according to a pre-determined time schedule. It might affect the cash flow. There would be times when you need cash for buying an asset but would be forced to pay the interest on bonds.