If you borrow money by obtaining a loan, it is referred to as ‘debt’ capital. Another source of finance for business is ‘equity’ capital. Although this is, in the strictest sense of the word, not really borrowing, but exchanging rights to receive certain financial benefits in exchange for providing capital.

Obtaining money from a lender involves the necessity of repaying what has been borrowed, along with an agreed amount of interest. So borrowing money in this way involves the repayment of more than was borrowed. It costs you money to borrow money. You must be sure that any money raised in this way can be used to produce enough of an income, which will be large enough to repay the principal, the interest and give an overall, worthwhile profit in addition.

Equity money, on the other hand is money that you can raise which does not need to be paid back. It is essentially funding for which you pledge part of your companies assets in exchange for.

The best way to get equity capital is to go public. Form a public limited company and sell shares to interested investors. Although you are technically ‘selling’ something in return for this capital, you are not actually having to dispose of any assets, so the money so obtained comes in without the need to give anything up in return for it.

Of course you must retain control of the company by ensuring that you keep ownership of at least 51% of the shares issued. As the main owner you have the final say in how the company is to be run.

So, when you raise equity money, your company does not have to have made a sale of any product. If can raise up to several millions of pounds operating capital without having to dispose of either stock or assets. This capital can be used for a multitude of purposes. You can use it to pay off debts, salaries, rent, taxes, buy property and stock, pay for expenses and running costs and to launch a new marketing campaign in your drive towards profitability.

Another method of borrowing money, which you can keep indefinitely, is to take out loans to repay existing loans. When the new loan needs to be repaid, take out a further loan to repay it. This may sound somewhat strange, as you will have to pay interest on the money borrowed. However, if you need finance in the long term and can use the money to produce enough profit to repay the interest but do not wish to repay the capital, this is an excellent method of doing so.

What to do is to apply for credit at twice the number of banks from which you would actually accept loans. So, if you applied to a dozen banks for £5,000 from each one, and accepted a loan from only half of them, you would raise £30,000. If you have these loans for the short term, i.e. 60 days, you could then go to the remaining six banks and accept the six £5,000 loans to pay off the original ones. This process could be continued so that you are constantly paying back loans with other loans.

This may seem like an unsound way of financing business deals, but when you have access to opportunities which produce sufficient profit to pay for the interest charges and give you a good income also, it can be very useful in that you are not burdened by the need to repay the principal sum borrowed. Or at least to not repay it from your own pocket.

Although this system can be employed to keep the borrowed money indefinitely, the idea is that you should use it for investing in moneymaking deals, which will tie up the capital for the long term. After a prolonged period, and once you have made sufficient profits, the business transactions in which you have taken part should ultimately produce sufficient profits to repay the capital outright.

I have a friend who borrows money using this method and buys property to furnish and let out to tenants. The rental income is always sufficient to repay interest and leave him with a good income. After a few years the property is usually resold to make a capital

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