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what are the two ways means can raise capital? list down the pros and cons of each of the ways? equity funding and debt financing??
Equity Funding
Selling a piece of a company's equity to raise money is known as equity financing. For instance, Company ABC's owner might need to raise money to finance company growth. The business's owner decides to sell a 10% stake in the company to an investor in exchange for funding. With a 10% stake in the company currently, the investor will have a say in future business choices.
The fact that there is no requirement to repay the money obtained through equity financing is its main benefit. Naturally, a business's owners want it to succeed and give equity investors a favourable return on their investment, but without having to make payments or pay interest, as with debt financing.
Debt Financing
In debt finance, money is borrowed and then repaid with interest. A loan is the most typical type of debt financing. Debt financing occasionally entails limitations on the company's operations, which may prohibit it from seizing possibilities outside of its primary business. A relatively low debt-to-equity ratio is viewed positively by creditors, which is advantageous to the business should it ever need to secure further debt financing.
There are many benefits to debt finance. First off, the lender has no influence on your company. Your connection with the financier is terminated once you have repaid the debt. The interest you pay is furthermore tax deductible.
Finally, because loan payments are constant, expenses are simple to predict.
To learn more about equity or debt funding
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