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Need a short Finance paper written Pin It Business Financing and the Capital Structure Busines

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Running Head: DEBT and EQUITY FINANCING 1

Debt and Equity Financing

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DEBT and EQUITY FINANCING 2

As a financial advisor to a business which is at its starting point, the advice that I would

give to a client for raising business capital using both equity and debts options given today’s

economy would be acquiring a debt financing. This is because of the nature of the business

(Pratt, 2011). The fact that the business is at its starting point, chances of getting an angel

investor for equity financing are minimal and if in any case the business manages to get one,

he/she will be looking to invest only $300,000 in minimum and yet claim a stake of 50% (Pratt,

2011).

There are various advantages and disadvantages that exist between debt and equity

financing Some of the advantages of debt financing include; the lending institution or bank does

not play a role on how the business is run neither does it have a share in it. Besides that, once the

business pays back the money to the bank, then their relationship ends and the loan interests can

be deducted using tax (Pratt, 2011).This lending system is also not without disadvantages among

them being that; the payment of the loan taken normally has a deadline failure of which the

business can be forced to give away the items they stated as collateral .Besides that, potential

investors tend to shy away from businesses which operate on high amounts of debts as they are

seen as high risks and this can limit the chances of the business raising capital in future.

On the other hand, equity financing is a good option for those businesses which are not in

a position to take debts because they do not need to pay the money back meaning it is less risky

as compared to loans. Besides that, more business credibility may be added since the business

gets the chance to tap into the networks of the investor. Besides that, most investors operate on

long-term views meaning that the business does not need to worry on where to get money to pay

for the investment made by the investor .The downside of this kind of financing includes issues

like; the investor ends up having a stake of the business hence having control in the business

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Running Head: DEBT and EQUITY FINANCING Debt and Equity Financing Name Course Tutor Date 1 DEBT and EQUITY FINANCING As a financial advisor to a business which is at its starting point, the advice that I would give to a client for raising business capital using both equity and debts options given today’s economy would be acquiring a debt financing. This is because of the nature of the business (Pratt, 2011). The fact that the business is at its starting point, chances of getting an angel investor for equity financing are minimal and if in any case the business manages to get one, he/she will be looking to invest only $300,000 in minimum and yet claim a stake of 50% (Pratt, 2011). There are various advantages and disadvantages that exist between debt and equity financing Some of the advantages of debt financing include; the lending institution or bank does not play a role on how the business is run neither does it have a share in it. Besides that, once the business pays back the money to the bank, then their relationship ends and the loan interests can be deducted using tax (Pratt, 2011).This lending system is also not without disadvantages among them being that; the payment of the loan taken normally has a deadline failure of which the business can be forced to give away the items they stated as collateral .Besides that, potential investors tend to shy away from businesses which operate on high amounts of debts as they are seen as high risks and this can limit the chanc ...
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