Debt Financing Versus Equity Financing
There are two types of financing available: equity financing and debt financing
.
Debt Financing
Debt financing means a loan (money that must be paid in a given period, usually with interest). Debt financing is either short term (the loan is paid in less than a year) or long term (the loan is repaid in more than one year). Lending parties will also follow closely the activities of the ratio between debt and equity.
If you are currently a business loan, the only obligation of the company that loans on terms that were agreed to be returned. The credit party is not a partner in the business.
Many banks are guaranteeing the owner (s) of the smaller companies in person, the loan. In this case, the loan is the same as a personal loan.
When you set up a home based business and we hope, a commercial loan, you will be required in any case personally guarantee the loan.
Benefits of debt financing
The biggest advantage of debt financing is that the loan has not won a share of ownership of their business and their only obligation to the loan is to pay the debt. The loan repayment is usually a fixed cost, depending on the conditions of the loan.
Dis-advantages of debt financing
The greatest DIS-advantage is that the business does not have all cash flow available to do business. Also the interest owed can be high.
Capital Financing
Equity financing is when you (the employer) sold a stake in his company in exchange for money. The entrepreneur and the investor (s) divides the economy and the risks that come with it.
Equity financing is a way to finance your business without debt. With equity financing, which requires no funding, because the media is already an investor in exchange for a piece of property in the economy.
Many small businesses growing and to use equity financing as a funding source. There are many sources of self-financing and non-professional investors such as family and friends, employees, etc. The most common cause, however, are professional investors, known venture capitalists.
Venture capitalists are increasing for companies with the possible result of which the value of your investment. Do not expect a return on investment seen.
Most venture capitalists focus on particular types of businesses such as entrepreneurship, some sectors (health, technology, services) or technologies.
Advantage Capital Financing
The big advantage of equity financing is that cash flow would have been used to repay the loan are used to expand the business further.
Dis-Advantages of the Capital Financing
The great advantage of the equity financing of DIS, the loss of property is of interest to your company and also the possible loss of total control that may accompany a sharing of ownership of the business with investors.
Debt Financing Versus Equity Financing
By: Alice Ramadhani
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