Debt Financing a Small Business or Startup

Starting your own business is one of the most challenging—and rewarding—leaps you can take with your career. Turning your idea into a successful, thriving firm takes ingenuity, determination, and grit. It also takes a decent chunk of capital. You have to spend money to make money, right?

According to the U.S. Small Business Association, 57% of start-up businesses rely on personal savings to get their firms going. But if you’re just starting out or are planning an expansion to take your business to the next level, you might need more than you feel comfortable taking out of your savings.

Luckily, there are other sources of financing available that can help offset your costs. In fact, a recent National Small Business Association report found that available financing for small firms is on the rise, with 73% of businesses being able to access the financing they need.

Whether you need to get your business off the ground, expand your reach, or have cash on hand, it can take some creativity to find the right financing to help you thrive. Here are the basics of debt financing to help you find the right solution for your business.

What is Debt Financing?

Debt financing is the technical term for borrowing money from a lender to help run your business (as opposed to raising equity to cover your costs). Examples of debt financing include small business loans and lines of credit. Small businesses use debt financing to cover a range of expenses including start-up costs, operations, equipment, and repairs.

How Does Debt Financing Work?

Essentially, debt financing means borrowing money from a lender that you agree to pay back, typically with interest. If you’ve ever taken out a loan, you’ve financed a debt. The terms of the financing are agreed upon in advance, and you are mostly free to use the money however you wish.

Getting debt financing with favorable terms can be dependent on your credit score and financial profile. However, it is a relatively quick way to secure funds.

What’s the Difference Between Debt Financing and Equity Financing?

Equity financing refers to selling shares of a business in exchange for capital. Basically, this means finding investors who, in exchange for a portion of the business, help fund it. Equity financing can include everything from raising funds from friends and family to securing multiple rounds of financing from angel investors and venture capital firms.

A benefit of equity financing is that it’s money that is given rather than lent, meaning that you won’t have to pay interest. Another benefit is the investors themselves: Having good relationships with them can lead to important connections, mentorship, and resources to help your business grow.

Of course, a potential downside to equity financing is losing some control over the business and its operations (for example, many investors may want a seat on your board in exchange for funding . It can also take a long time—and a lot of effort—to attract and secure investors.

What’s the Difference Between Short and Long-Term Debt Financing?

Debt financing can be divided up into categories of short-term and long-term. Short-term debt financing refers to loans that are repaid over a period of a year or less. This includes everything from using a credit card, to opening a line of credit that you repay as you use it. Short-term financing can be useful for everyday expenses, small emergency repairs, and to cover cash flow.

Businesses use long-term debt financing to cover larger purchases such as expensive equipment, renovations, or real estate purchases. This can include mortgages or business loans which have multiple-year repayment plans. Often lenders require these types of loans to be secured by the assets that they are helping you purchase. For instance, a property mortgage would be secured by the property itself.

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What Debt Financing Options are Available?

If you’re looking for an immediate solution, short-term debt financing may be a good place to start. For covering smaller day-to-day expenses that you plan to pay back quickly, a credit card might be the easiest and most familiar option.

Opening a line of credit can also be a handy way to manage cash flow or finance an expansion over a period of time. A line of credit works a bit like a credit card, but with more flexibility.

Lines of credit tend to be larger than credit card limits, and they usually have more competitive interest rates. Just like a credit card, you can borrow what you need as you need it, and then make monthly repayments.

About SoFi

SoFi is a new kind of finance company that offers personal loans, student loan refinancing, mortgage refinancing, and more. Learn more today to see how SoFi can help you reach your financial goals.


The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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How Divorce Loans Can Help

When you walked down the aisle, you never dreamed that you would one day be Googling divorce attorneys. But, unfortunately, life doesn’t always turn out the way we planned.

Deciding to get a divorce is difficult enough without having to worry about the expense of it. But all those internet searches likely showed you something you already suspected: Getting divorced can be costly.

So, just how expensive is a divorce? According to a survey by Nolo , the average cost of a divorce is $15,500. The total costs of a divorce can range from as little as a few hundred dollars to well over $100,000, or even into the millions if you’re a Hollywood starlet or Wall Street tycoon.

Why so expensive? In addition to obvious costs like attorney’s fees, there are costs for other things like time off work, court costs, mediator costs, real estate fees, a financial planner’s fees, accountant’s fees, and maybe even a plane ticket to the Bahamas so that you can take a break from it all.

Before you get worried about your divorce costing six figures, let’s break down the real cost of divorce and discuss some ways to finance it.

A Breakdown of Typical Divorce Costs

Are you crossing your fingers and hoping that you’ll have one of those divorces that only costs $400? If your divorce is not contested, or you agree on everything from the distribution of your assets to who gets your kids during the holidays, it could be relatively simple and inexpensive. Often couples draft up their own agreement and just bring it to a lawyer to make it official.

But let’s be honest, when was the last time you agreed on everything with anyone, let alone with your ex-spouse about things that important? Couples often need at least a mediator to help them come to an agreement.

If you disagree over dividing your finances (and you don’t have a prenup), or you can’t decide who should have custody of the kids, then you’ll likely both look to hiring attorneys.

Further, you could end up going to court if you’re not able to reach a settlement. Attorney’s fees make up the bulk of divorce costs with the average couple in Nolo’s survey paying $12,800 in lawyer’s fees to break up.

After that, there are court costs, and the cost of experts to bolster your case. Not sure what experts you could possibly need? Think child custody evaluators, accountants, and real estate evaluators. Speaking to any or all of them can continue to rack up a tab.

The Hidden Divorce Costs You’ll Need to Prepare For

Unfortunately, the total costs of your divorce are broader than just what it takes to reach a financial settlement and custody agreement. You might have to sell your home even if the market is not so great, or sell investments during a downturn.

There are real estate and closing costs, down payments on new houses, and moving costs. That alone could cost thousands and might include one costly trip to Ikea. If you have kids, you might even need to buy extra clothes and toys for both houses so that your kids don’t feel like they’re living out of a suitcase.

There are also other hidden costs that come with going to court. You might miss out on work and income in order to meet with lawyers, or have to pay for child care while you’re both meeting to finalize the details. You might also need help from your financial planner or accountant as you separate your finances and plan for your own financial future. If you have shared debt, there could even be costs associated in figuring out how to divide it or pay it off.

Then there are ongoing costs related to child support or alimony. If one partner used to stay home with the kids but is now re-entering the workforce, day care or after-school care could be another added ongoing expense. Counseling could also be necessary to deal with the difficulties and changes in your life—for both yourself or your kids.

That’s not even counting all the pints of chocolate ice cream or books about restarting your life after divorce that you may or may not impulse buy.

How a Personal Loan Can Help Finance a Divorce

The challenge with divorce costs is that they are often all due around the same time. Since we don’t generally save for a potential divorce in an account labeled Divorce Fund, there’s often not enough cash on hand to cover everything.

Many people resort to using credit cards, but expensive interest rates only make your divorce cost more in the long run. Getting a divorce loan might sound strange, but it’s often a crucial way to pay for your divorce without going into credit card debt.

A divorce loan is essentially a personal loan that you take out to finance your divorce. If you have good financial history and a good job, you’ll be might be eligible to qualify for a much lower interest rate on a personal loan than a credit card would offer.

A personal loan can pay for divorce attorney’s fees or allow you to pay the movers. It can help you pay off existing joint debt, and even be put towards a new budget.

Having the funds from a personal loan can give you time to space out the costs over a longer period of time so that you don’t have to sell that painting your Aunt Mary left you. A personal loan to fund divorce costs could mean breathing room, peace of mind, and respite in a difficult time.

If you think a personal loan sounds like the plan for you, check out SoFi’s personal loans to help finance your divorce.


The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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