Preferred Stock represents ownership in the business, but requires that its holders be repaid first if the business should go bankrupt. A corporation has certain advantages in obtaining funds. Keep in mind that corporations are more highly regulated than other forms of business organization. Although SEC filings are not required for all public offerings, there are other costs associated with raising equity financing such as printing costs and general solicitation costs. Although some small companies select equity financing, debt financing historically has been more accessible by most small firm owners.
Interest paid for a loan is deductible as a business expense and reduces the tax burden.
The money obtained through borrowing is controlled by the owner of the business and control over the company is not diminished. The Small Business Administration is an independent federal government agency established in 1953 to assist small business. The SBA provides loan guarantees and, if funds are available, makes a very limited number of direct loans. To receive any financial assistance from SBA, a business must be unable to secure reasonable financing from other sources. A loan proposal for the SBA is generally more complex and requires more documentation than one for banks.