That's a big question for many small business owners who want growth and need capital.
Business author Michael Masterson has some great views on the subject:
"If you can sell stock in your company to finance its growth, some financial advisors would urge you to do so. If you are creditworthy, bankers will tell you to borrow what you need. Using "other people's money" (OPM) - whether it comes from financial institutions or investors - is a great way to pay for growth, because what you give up for the money is usually modest in comparison to what you get. Often times, if you have a good business idea, friends and business associates will be eager to get in on the idea with you.
That's the conventional wisdom - and for some of the businesspeople I know, debt
or equity-based growth has been a godsend. But for everyone I know who has used OPM to finance growth, I know two or three who have done so and regretted it.
The most obvious reason: If your great idea bombs (yes, it might), you are now the same-sized company as you were before - but with a load of debt or a gang of angry investors you didn't have before.
But that's not the real problem with OPM. There is a hidden weakness to it that can break up your whole business.
OPM feels less real than your own. When you are planning a project with OPM, you allocate money to this and that, spending what you think is "reasonable," while knowing in your heart of hearts that you wouldn't ever spend that kind of money on that kind of thing if the money were your own.
It's like play money. You get it, you allocate it, and you see what happens. If it works, great. If it doesn't... well, it's OPM.
I'm not saying this exactly right. I don't mean to imply, for example, that everyone who uses OPM doesn't care about the investor or doesn't work very hard to make the project work.
What I'm saying is that there is something in the process of using OPM - the initial budgeting, decision-making process - that makes a difference in how you spend the money. It makes you a bit too optimistic, a shard less scared, a tad too visionary. It allows you to spend money on things like focus groups, marketing studies, and consultants that you'd never bother with if the dollars were coming from your own pocket."
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