Understanding the True Cost of Capital: Choosing Credit Over Equity
Understanding the True Cost of Capital: Choosing Private Credit Over Traditional Equity Financing
By Zoe, Founder and CEO of Insight Funders
Introduction
When raising funds, founders often overlook the “true cost of capital.” While equity financing may seem attractive at first, the long-term cost can be significant. In this blog, we’ll explore why private credit can often be a more cost-effective choice for growth and how founders can evaluate their options.
What is the True Cost of Capital?
The true cost of capital considers not just the immediate funds raised but the long-term impact on ownership, control, and profit retention. With equity, you’re giving up future earnings, which can add up significantly as the company grows.
Debt vs. Equity: Calculating the Costs
With debt, your cost is limited to the interest and principal repayment. With equity, the cost compounds over time, as future profits are shared with investors indefinitely. For high-growth companies, debt often ends up being more economical in the long run.
Case Study: Calculating the Difference
Consider a startup that raised $2 million through private credit instead of selling 20% equity. By avoiding equity dilution, the founder retained control and potentially saved millions in future earnings, illustrating how private credit can be a lower-cost option.
Insight Funders: A Transparent Solution
At Insight Funders, we provide the resources and data to help you understand the true cost of capital, offering access to private credit that aligns with your growth goals.
Conclusion
Understanding the true cost of capital can empower founders to make smarter financial decisions. With Insight Funders, you can access private credit that supports your growth without compromising your future profits.
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