Essay on Equity Financing And Debt Financing

727 Words Nov 8th, 2016 3 Pages
Equity and Debt Financing
Every business wants to expand and grow in some form whether it is by purchasing new equipment or a new site for their business. When they decide to expand they usually have to decide on a type of financing. The two main types of financing for a business expansion are equity financing and debt financing. Equity financing is the selling of stock in the company whereas debt financing is incurring debt by taking out a loan with a lender. There are differences between equity and debt with the main one being with equity financing some control over the company is given up with the sale of stock in the company. Debt financing the owner/owners retain all control which is also a benefit. A benefit for equity is no debt is incurred with the financing.
When a business wants to expand they look at every option available to them. If the funds to expand are not available internally by means of profits, then they look at their external options. The two main external options are equity financing and debt financing. Equity financing is the selling of shares of stock in the company. Equity financing “keeps management away from the hassles of raising funds again and again like other sources of financing viz. debt. Debt is raised and paid back over a period of time” (eFinance Management, n.d.). Some of the benefits of equity financing: Permanent source of financing enabling management to concentrate on the main goals of the company such as manufacturing the products…

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