Economic instability is rising in 2022, which comes with market and business fluctuations entrepreneurs need to keep in mind. Financial institutions nationwide will get tighter on money and stricter about the loans they provide to clients. If you want to grow your business or dive deep into that next startup, you're not out of luck.

The secret is if you know how credit works, you'll learn how to access the funds you need to thrive. Having personally raised both debt and equity capital for my company, I'll share some insights on whether equity or debt capital is the best avenue for funding your entrepreneurial pursuits.

How debt capital can help your business

Credit is the foundation of your finances; however, it's always important to approach debt and loans with an informed strategy. In both life and business, you will eventually need to know, use, and understand credit. Financial independence is a result of owning assets and acquiring investments.

For example, if you can get a loan for $50,000 to $150,000 at a low-interest rate, you're increasing your cash flow while shrinking your timeline immensely. How long would it take to make that money independently, and how many business advances would you lose out on as a result? These are all things to consider when looking to take your personal or business wealth to the next level.

Are you comfortable with bringing in a partner?
Equity is a reliable option to increase cash flow within your business, but there's a catch. Often you're giving away your business, a percentage of ownership, or control over business decisions. Losing the autonomy and rights of your company can come with significant downsides, especially if you go into a deal without a strong foundation of knowledge and negotiation skills.

If you are collaborating with an equity partner, it's a major decision, similar to signing a marriage license. For example, if your partner is more educated on the industry, finances, and business side of things, the scale can quickly turn against you. It's always important to be careful about your partner and take proper steps to create clear boundaries. In business, you don't always know who you're dealing with, so don't let excitement or "too good to be true" deals win you over.

Are you positioned to grow your business?

If you can acquire low-interest rates, it's always more advantageous to gain capital for yourself. On the other hand, remember that not all debt is good debt. High-interest rates are not going to save you money in the long run. You're creating additional expenses and labor if you can't save more than you borrow.  

Tyler Bossetti, who runs  0 Percent, lends capital to hundreds of individuals and business owners. He recommends that before taking debt, ensure you're positioned to grow profits with the money. The last thing you should be doing is using debt capital to start a risky venture that's unproven.

It should be either saving or making you money; otherwise, you're placing yourself in a risky financial position.

Can you build trust with investors?
Reputation is just as crucial in the business world as it is in everyday life. It's essential to build credibility and trust with investors if you want to see opportunities open up for you. People need to know you, like you, and trust you're reliable.

Don't be afraid to put yourself out there and get your name in front of more eyes. Networking and social media are great ways to go about this. Create authentic content that captures attention and makes people care about your mission.

Credibility is built through proven results, a positive track record, and thorough preparation. Even if you're starting at ground zero, don't underestimate the importance of educating yourself and presenting your business plan with professionalism, drive, and ingenuity.