{"id":5183,"date":"2016-04-04T10:47:58","date_gmt":"2016-04-04T15:47:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/financing-a-small-business-loans-vs-equity-investment.html"},"modified":"2024-05-08T00:01:00","modified_gmt":"2024-05-08T05:01:00","slug":"financing-a-small-business-loans-vs-equity-investment","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/financing-a-small-business-loans-vs-equity-investment.html","title":{"rendered":"Financing a Small Business: Loans vs. Equity Investment"},"content":{"rendered":"\n
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Financing a Small Business: Loans vs. Equity Investment<\/h1>\n\n
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\n By FindLaw Staff<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

Business owners looking to start their operations or grow their business typically choose between loans and equity financing. Loans require repayment with interest but allow for full ownership. Equity financing involves selling ownership shares for cash.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

You are ready to\u00a0start your own small business<\/a>\u00a0but don’t know where to find startup financing. One of the most complex decisions facing small-business owners is how to obtain financing for their business.<\/p>\n

Most business owners have two options:\u00a0take out a loan<\/a>\u00a0or sell a piece of their business for\u00a0startup cash<\/a>. This FindLaw article helps you explore the different small business financing options available to entrepreneurs.<\/p>\n

We make business formation EASY.\u00a0Click here to start your free LLC.<\/a><\/b><\/i><\/p>\n

Choosing Between Loans and Equity<\/h2>\n

If you are in the\u00a0formation stage<\/a>\u00a0of setting up your business, take time to create a\u00a0business plan<\/span><\/a>. This will help you understand how much financing you need in your new business<\/span>. You can then assess your business <\/span>credit<\/span> score<\/span> and review traditional interest rates<\/span> for bank loans<\/span> or credit cards<\/span>. Knowing your early-stage<\/span> and short-term<\/span> expenses will help you make the right decision for your business needs<\/span>.<\/p>\n

Loans<\/h2>\n

Loans are a form of debt financing<\/span>. Just as with personal loans<\/span>, your business repays at an interest rate<\/span> based on your credit score<\/span>.<\/p>\n

Types of loans:<\/p>\n