Michael Armstrong and Tatyana Sokolyk, both Associate Professors of Operations Research in Brock’s Goodman School of Business, wrote a piece recently published in The Conversation about the most beneficial borrowing options for new businesses.
Armstrong and Sokolyk write:
Starting a new business can be satisfying but stressful. Among other tasks, entrepreneurs must raise enough funds for their ventures. But it turns out the type of funding matters, not just the amount. Start-ups funded via business loans tend to outperform those using personal loans or having no loans at all.
Relatively few new businesses rely only on equity financing from their owners. A survey of start-ups in the United States found three-quarters also had some kind of debt.
About 55 per cent of start-ups used personal debt in the owner’s name. Examples include personal bank loans and home equity lines of credit. Some 44 per cent used business debt, like bank loans made directly to the firms. And 24 per cent used trade credit from their suppliers. For example, they would wait 30 days to pay suppliers’ invoices.
Continue reading the full article here.