loans need collateral = personal guarantees
are you ready to take that risk?
@Alok: why is that fundraising in the tech field is mostly investment, while that in other fields is mostly loans ?
Is it because there are few or no tangible assets in tech companies ?
If I might ask, how did you raise money for your socks factory ?
If I were to be in your shoes I would consider a few factors such as Length of time, cost of financing, perceived risk of the business and control of the business.
If you are to consider debt financing, usually a loan, as most of guys said you have to have some assets to be used as collateral or personal guarantors. You require paying back the amount borrowed + interest, whether you make profit or not. And also you have to be clear whether you are looking for a short term loan (less than one year) to use to provide working capital to finance inventory or the operations of the business. This type of loans can be repaid from the resulting sales and profits of the year. If you are looking for a loan to purchase a piece of machinery, land or building, with part of the value of the asset being used as collateral, it is advisable to go for a long term loan.
If you are to consider equity financing, it does not require collateral and all what you have to do is offer the investor some form of ownership position in your venture (This is where CONTROL of the business comes into play), share in the profits, and also any disposition of assets on a pro rata basis.
What you have is an ongoing business, you must have a fairly good idea about your market, business growth etc so that you can take a calculated risk whether to go for a loan. Since yours is a new business you can employ a combination of both debt and equity financing. (Sorry if I sound like an academia)
@Shan: just to go off track - what is a line of credit ? which type of debt financing does it fall under ?
A line of credit is quite similar to a bank loan (Usually an overdraft facility) but the only difference is that the approved amount (Loan) is not withdrawn fully. So as a layman I can say it is an arrangement between a bank or a financial institute and a (regular) customer establishing a maximum loan balance that the customer is permitted to borrow and maintain. The customer can draw credit at any given time without exceeding the maximum amount agreed upon. This falls under ‘Cash flow financing’ as far I understand