What are the Advantages and Disadvantages Equity Financing?

Equity financing is raising funds for investment through sale of company stock. The many advantages and disadvantages equity financing make this option a tricky one. Whether a company needs to mobilize funds through sale of equity depends on the company specific circumstances. The advantages and disadvantages of equity financing usually reverse in the case of … Continue reading “What are the Advantages and Disadvantages Equity Financing?”

Equity financing is raising funds for investment through sale of company stock. The many advantages and disadvantages equity financing make this option a tricky one.

Whether a company needs to mobilize funds through sale of equity depends on the company specific circumstances. The advantages and disadvantages of equity financing usually reverse in the case of debt financing, the major alternative source of funds. Most companies make a tradeoff between debt vs equity financing, and have a mix of both.

Image Credit: flickr.com/kevindooley

For all the benefits of equity financing, it also comes with many disadvantages.

Pros and Cons of Debt Financing

Debt financing is funding investments or expenditure using money borrowed from an outside source under condition of repaying the principal and the agreed-upon interest on a set schedule. Read on for an understanding of the pros and cons of debt financing.

Debt financing is borrowing money from external sources to run a business, or make new investments.The borrower receives the amount required, usually a large captal sum upfront, and agrees to repay the same with applicable interest in installments, usually equated monthly investments. Most debt financing are long term in nature.The borrower usually needs to pledge some collateral security such as existing assets as a safeguard for the creditor in the eventuality that money invested does not bear fruit and the debtor is unable to repay the loan.

var ezzns22 = 0.30:504551,0.80:504559,1.30:504650,2.20:504658,4.00:504666,0.05:504099,0.15:504144,0.70:504558,1.70:504654,3.50:504665,5.00:504669,1.10:504648,1.20:504649,1.40:504651,1.80:504655,0.25:504548,0.35:504552,0.40:504554,0.60:504557,2.80:504661,4.50:504667,2.60:504660,0.45:504555,0.90:504560,1.50:504652,2.40:504659,3.00:504664,0.20:504145,1.00:504647,1.60:504653,2.00:504657,0.10:504141,0.50:504556,1.90:504656,;

var ezoflbf_2_22 = function() IL11ILILIIlLLLILILLLLIILLLIIL11111LLILiiLIliLlILlLiiLLIiILL.ReloadFromP(1022);;

var ezoflbf_22 = function() eval(ez_write_tag([[300,250],’brighthub_com-medrectangle-2′]));

;

Criteo.DisplayAd(

zoneid: 504651, containerid: ‘crt-22’, passbackcode: ezoflbf_22

);

setTimeout(function()if(typeof IL11ILILIIlLLLILILLLLIILLLIIL11111LLILiiLIliLlILlLiiLLIiILL == ‘object’)

var ezflaun = IL11ILILIIlLLLILILLLLIILLLIIL11111LLILiiLIliLlILlLiiLLIiILL.GetNameFromPositionId(1022);

if(typeof ezflaun != ‘undefined’ && ezflaun.length > 0)

if(typeof ez_ad_units != undefined)

for(i=0;i

if(ezflaun.indexOf(ez_ad_units[i][1]) >= 0)

return false;

IL11ILILIIlLLLILILLLLIILLLIIL11111LLILiiLIliLlILlLiiLLIiILL.StoreStatSource(ezflaun, 47, 1.40);

IL11ILILIIlLLLILILLLLIILLLIIL11111LLILiiLIliLlILlLiiLLIiILL.RemoveSlotById(ezflaun);

, 4000);An important source of this type of financing is the bank, but many private companies, and even friends and relatives offer such financing.

Debt financing is a major type of funding and has both advantages and disadvantages.

Image Credit: flickr.com/TheTruthAbout

Reviewing the pros and cons of debt financing, debt financing offers many advantages for the debtors. Some such advantages include:

The advantages of debt financing notwithstanding, this financing model also have many shortcomings. Some of them include:

Comparing the advantages and disadvantages of debt financing, debt financing remains suitable if the cash is put to high growth ventures with stable cash flows.