When it comes to raising money for your business, unless you have significant personal savings or get really lucky with crowdfunding, there generally are two options--taking on debt or giving away equity.
But which is best?
The answer is this: It depends.
Outspoken entrepreneur Mark Cuban famously said back in 2013 that anyone that takes out a small business loan is a "moron" because the lender doesn't care about the business and only wants its money back. That repayment pressure can be crippling.
Cuban's more a fan of equity financing, which is the practice of raising money by selling common stock shares to either individual or institution investors. Those shareholders thus have an ownership interest in your business.
In theory, that's a good idea. A part owner of your company will certainly want it to succeed. There also are plenty of times when a business just can't secure a loan.
In reality, that might not be the case. Give away too much equity and, at best, the investor might just be meddlesome and hinder your vision. At worst, that investor might take a controlling interest and even potentially kick you to the curb.
If you're someone with a meticulous vision for your company, then debt financing could be the way to go.
Remember that if you give away equity, you're doing it for life. If you're assuming debt, in the long run it will go away, assuming your business is a success.
With debt financing, you'll maintain control of the company and run it however you please.
When the business becomes profitable--any entrepreneur worth his/her salt will believe that--all the proceeds after the loan is repaid are yours to keep.
In addition, when you finance via debt, the interest paid on the loan is tax deductible.
Of course, debt financing has its risks.
Those include potentially high interest rates and the possibility that your business fails--whether through mismanagement or through no fault of your own. There's also the chance you can't find a lender willing to give you a loan.
Clearly, neither option is perfect, but one might work better for you depending upon the situation. It's vital to not think about your funding needs in black and white terms and keep all options open.