When it comes to deciding between using equity or debt, it ultimately depends on your individual situation and what you’re looking to achieve. However, in most cases, debt is typically the better option due to its lower cost. Here are some reasons why:
Debt is generally less expensive than Equity. This is because the interest on debt is typically tax-deductible, making it cheaper overall compared to equity-based financing.
The risk and return of Debt are typically lower than Equity. Lenders who provide debt financing will typically receive a fixed rate of interest, which means they have a lower risk of losing their money. Additionally, the expected returns for lenders are usually lower compared to equity-based investors, meaning that the potential reward for debt financing is also lower.
Debt can help improve your credit score. If you make timely payments on your debts, it can help improve your credit score over time. This can be incredibly valuable if you plan on seeking additional financing in the future.
Ultimately, the decision to use equity or debt comes down to your individual situation. However, if cost is a major factor, you may want to consider using debt financing as a lower-cost option.