Dinn, Hochman & Potter, LLC

Debt financing is a valid option for help funding some startups

If you are in the early stages of operation or even the planning and setup of your business, you may find you need additional capital to run things smoothly. Maybe you have a family-owned business or don't want to relinquish any control to venture capitalists and shareholders. If this is the case, a strong option for help with funding is debt financing.

As an alternative option to equity financing, which is a way of raising capital by selling ownership interest, or shares of the business, debt financing promises repayment of the principal amount, along with interest, in return for loaned funding. This can be accomplished by selling bills, bonds or notes to both institutional and individual investors, in turn, making them the creditor on a promise to repay. This way, the startup does not have to essentially answer to, or request approval from anyone outside of the organization, and the owner can retain complete control.

Understanding your options and having a solid business plan can help protect the enterprise from becoming overleveraged, or carrying more debt than it can feasibly pay off in a timely and non-catastrophic manner.

When your privately funded or closely-held company is in the early stages of formation and planning, it may prove very beneficial to retain an attorney who is readily available and who will work so intrinsically that it feels as if they are in-house. You will likely go through various levels and needs for funding over the lifetime of your business. Having an attorney who knows your requirements as they pertain to your specific enterprise and knows the caveats of each type of funding could keep you from making costly mistakes.

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