Is it better to finance your business with your own money or debt?

Entrepreneurs ponder whether using your own cash or someone else’s is best

“I’m a small business that

focuses on craft and not high volume. I have grown a thriving studio business using only my own money made from projects. Don’t start in in debt, grow strategically and do not live above your means.” Heiko Ryll, owner, Heiko Ryll Studios, heikoryllstudios.com

“Typically the answer is debt,

assuming you’re getting it at a very reasonable rate. If your business is highrisk and the banks are going to charge a lot more than market value, then it may make sense to use your own money. When you use the bank’s money, you have the ability to use yours in times when you may need to feed the business and also, any interest you are paying is fully deductible from a tax standpoint.” Ashif Mawji, co-founder, Trust Science, trustscience.com

“When I started my yo-yo

business (CLYW Inc.) in 2006, using my own money was my only option. I didn’t have three years of financials, so the bank wouldn’t lend me any money. Eventually as my business grew I was able to get a small line of credit.” Chris Mikulin, digital marketing manager, boxclever.ca

“In any business, cash flow

is likely the top consideration. I have found it difficult to self-finance our business from time to time. This becomes more apparent as you grow your business and need capital for new staff or infrastructure. Borrowing money to free up cash flow has been the most successful scenario for us, as long as it’s strategic and there’s a clear benefit in doing so.” Edward Langer, vice-president, Think Tank Ads, thinktankads.com

“Financing with your own money

is safe and interestfree, but nothing fires up my work engines like a bank loan — now I must get back to work!” Chelsea Krupa, owner, Rehab and Retreat, rehabandretreat.com

“There are a lot of

variables that can come into play with this question, for instance, whether the business is incorporated or not. Regardless, one of the factors I would consider is the spread between the interest rates on the investment and the debt, and the net ‘cash in my jeans impact’ in after-tax dollars.” Shelley Bablitz, FocalPoint business coach, shelleybablitz. focalpointcoaching.com

“Self-funding, or bootstrapping,

a business can be strategic if you have the ability to pivot within your set financial limitations. If, however, the model for your business or project requires greater financial flexibility than your non-debt pool of funds can accommodate, then taking calculated debt can be invaluable to your success. I’ve personally gone the bootstrapping route because I’m able to leverage other resources to accommodate for the financial constraints. Every business has its unique strengths.” Hussam Tungekar, manager of business development, futurpreneur.ca

“A combination of both own

money and debt with reasonable leverage. An element of debt will improve your business’s ROI, debt is cheaper than equity in the current market environment, and an element of debt may produce tax efficient net income for your business.” Stephen Richards, director, ATB Corporate Financial Services, atb.com

“I think debt is okay

if you are fairly certain your business will take off. Did you do enough research on what it is you are building your business on and is there a large enough market? I prefer and have always used my money but sometimes that isn’t a choice. Really analyze what is needed and what is not needed and be as frugal as possible as you don’t need the added pressure of huge debt following you around adding stress to your business.” Crystal Puim, owner and lead photographer, crystalphotos.ca