While equity financing requires sacrificing ownership stake, debt financing involves raising capital through fixed income products like bonds, bills, or notes. They employed 59.9 million people (just shy of 50 percent of the entire workforce).Įxpanding companies typically consider three primary financing options: equity, debt, or a combination of the two. Not only is it now easier to secure capital outside of banks, but many companies actually prefer these other types of debt financing due to their relative flexibility.Ĭommon sources of debt financing include business development companies (BDCs), private equity firms, individual investors, and asset managers.Īs of 2019, there were 30.7 million small- and medium-sized enterprises (SMEs) in the United States, comprising 99.9 percent of all businesses. Over the past decade, small companies have sought out financing from alternative sources of debt financing. Yet that doesn’t mean you’re out of luck. To make matters more complicated, frequent declines for a loan could decrease your chances of landing another one from the same institution. Instead, they now overwhelmingly favor established businesses with a consistent history of cash flow, sufficient collateral, and a favorable debt-to-income ratio.Ĭompanies with a short history of operation or poor credit history may be entirely unable to secure a bank loan. In large part, the reason comes down to the broadening influence of federal regulation.Įver since the 2008-09 financial crisis, investment banks and traditional lending sources have been less and less willing to lend to small and medium-sized businesses. While larger, long-established businesses can rely on traditional bank loans to fund growth initiatives, small and middle-market businesses must rely on other types of debt financing.
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