Debt funding is a startup funding method that provides new businesses with a cash injection that doesn’t require trading equity for capital. Rather than exchange equity for funding, debt funding provides a startup business with capital that must be repaid over a set period.
There are a number of debt funding options available to startups. Unlike traditional equity investments, debt funding provides startup founders with the opportunity to capture startup capital without diluting their ownership over the business. The downside of debt funding, however, is that finance comes with interest costs. In many cases, debt funding also requires that startup founders offer up their business as a security.
While non-dilutive funding options are attractive to startups seeking the capital they need to launch, it’s important to carefully assess the terms of any debt funding option to ensure that they align with the long-term goals of your startup.