Debt Isn’t Free—But Its Cost Is Usually Easy to Measure

One of the reasons business owners are often hesitant to borrow money is because they don’t like the price tag.

Interest rate. Origination fees. Closing costs. Monthly payments.

If you borrow $500,000, you know exactly what that capital is going to cost you.

But there’s one huge advantage of debt capital that doesn’t get enough attention…

The cost is generally finite.

If you borrow $500,000, pay the agreed-upon interest and fees, and repay the loan, that lender’s involvement with your business is over.

Contrast that to selling equity investors a “piece of the pie.” If your company doubles or triples in value (and many businesses do over 5 years), your equity investors enjoy a percentage of that increased value.

Does your lender share in your company’s successes?

No. The lender gets what you agreed to pay them. You keep all of the upside.

Consider looking at it this way.

“What will this money cost me in actual dollars and what will this capital allow me to create?”

Paying $100,000 in financing costs may sound like a lot.

But if that money allows you to create $2 million of additional value for your business, suddenly $100,000 doesn’t seem so bad.