Equity Financing vs. Debt Financing: An Overview

To raise capital for business needs, companies primarily have two types of financing as an option: equity financing and debt financing. Most companies use a combination of debt and equity financing, but there are some distinct advantages to both. Principal among them is that equity financing carries no repayment obligation and provides extra working capital that can be used to grow a business. Debt financing on the other hand does not require giving up a portion of ownership.

Companies usually have a choice as to whether to seek debt or equity financing. The choice often depends upon which source of funding is most easily accessible for the company, its cash flow, and how important maintaining control of the company is to its principal owners. The debt-to-equity-ratio shows how much of a company's financing is proportionately provided by debt and equity. At Capital Biz Solutions we have financing options for both debt & equity funding. Kindly visit us on the web at www.capitalbizsolutions.com or simply call us at 508 864 7758. We look forward to assisting you with your working capital needs.

KEY TAKEAWAYS

There are two types of financing available to a company when it needs to raise capital: equity financing and debt financing.
Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company.
The main advantage of equity financing is that there is no obligation to repay the money acquired through it.
Equity financing places no additional financial burden on the company, however, the downside is quite large.
The main advantage of debt financing is that a business owner does not give up any control of the business as they do with equity financing.
Creditors look favorably upon a relatively low debt-to-equity ratio, which benefits the company if it needs to access additional debt financing in the future.