For many businesses and commercial real estate investors, seeking out financing is necessary when projects cannot be funded internally. But depending on the requirements, debt-based financing is not always the best fit. As an alternative, equity financing can be used. However, it is necessary to understand the difference between equity financing and debt-based financing in order to choose the best solution for your transactions and projects.

Debt-Based Financing

Most people have heard of debt-based financing. Loans, credit cards, and more are structured around debt. The process to secure debt-based financing is typically simple. An individual or business applies for financing. Then, depending on a combination of credit score and financial history, they will be asked to put up collateral to get the financing they need. The credit score and financials will help determine the interest rates and the amount owed every month. The net result is that credit ratings are lowered and debt is placed on the books in exchange for capital.

Equity Financing

Equity financing offers more flexibility for business owners and commercial real estate investors. When businesses use equity financing, they sell a portion of their operations in the form of shares in exchange for capital. By doing this, businesses avoid taking on unnecessary debt. Additionally, because the investors now have an interest in seeing the business succeed, they will offer any guidance they can to keep the company profitable, because positive revenue means they get a return on their investment. In the case of commercial real estate, equity financing is offered in exchange for a portion of the revenue, whether it is rent from tenants or a sale of the property to a new owner after construction or renovations. Equity financing for real estate is typically used for larger projects or transactions where the funds required go beyond the limits of traditional debt-based financing.

Finding the Right Financing

Golden Century Lenders provides both debt-based and equity financing solutions nationwide. Whether you need extra capital for your business, or you need financing for a commercial real estate transaction, our team will work with you to provide tailored solutions. To learn more about debt-based and equity financing, contact Golden Century Lending today.