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  • Writer's pictureMichael Karfunkel

The 3 Ways to Raise Money

All growing companies need capital to grow. When it comes time to raise some money companies essentially have 3 options:

I: Earn the money

The most obvious way to raise money is to just earn it. Take income that the company is making and reinvest it! After all, pocketing profits will only get you so far! Unfortunately, reinvestment isn't always an option because many times a company wants to expand faster than its means permit. A small bakery that’s doing very well may be making $500,000 a year in profit. To expand and open another shop may cost several million dollars! That would mean it could take years of saving income before they could expand! That’s why instead of waiting many companies decide to take out a loan…

II: Debt

The second way to raise capital is by taking out a loan. Showing past earnings along with a business plan to a bank allows many companies to secure large loans to expand their businesses. There is a downside to a loan, though: interest. By taking on debt a business is also taking on a monthly expense - essentially paying for the right to use the bank’s money. Keep in mind that interest can have some small upsides such as tax benefits, though the specifics of that are beyond this article. If a company has already gone the route of debt or has an aversion to taking out loans, there is still one more way to raise capital…

III: Equity

A company can sell many things of value for cash - including the company itself! In fact, many entrepreneurs have a goal of being bought out from the very start! When someone starts a company they own 100% of it. Very often owners sell portions of the equity of their company to raise funds to grow! There are benefits to opting for equity over debt, the lack of a monthly interest expense being one of them, but selling equity comes with its downsides too. When someone invests in a company by purchasing equity they also become a partial owner. That means they typically get a say in how the company is run! In general, selling equity means selling control. Furthermore, if a company decides to go public and have shares of the company on a stock market exchange, the company may have dividends it's expected to pay!


All companies hit a growth point where they will need more capital than they are producing to grow. When deciding the route to take - debt or equity - there is no right answer. Each company decides for itself the ratio of debt to equity to take on. In fact, typically companies rarely change the debt/equity ratio they start with, so if you’re a company owner looking to expand - make sure you think it over before making a final decision!

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