Reference no: EM131514992
Please write a 250 response to the below discussion and please include 2 scholarly sources.
There are many different ways for companies to get money when needed to make improvements or expansions within the company. Some of these ways are issuing bonds, borrowing from the bank, and equity finance. Each of these ways has their own advantages and disadvantages to weigh before making a decision on which to go with for your business.
Issuing bonds is a good way to raise debt capital because they have a fixed interest rate for the loan. It protects against variable interests. This way keeps the regular bonds worth the same amount. If they were to issue additional shares to get the money, then it would dilute the stocks. There are many disadvantages to issuing bonds. For example, there is a regular interest that needs to be paid to the stockholders. It is a fixed interest, but still has to be paid. It can also be difficult to contact these stockholders, which can make it difficult to make changes to the terms and conditions (Advantages and Disadvantages of Raising Finance by Issuing Corporate Bonds, 2016).
Another financing option is borrowing money from a bank. This has a very big advantage of the bank not owning any part of the business. When the loan is paid off to the bank that is it. The business does not have to further contact with the bank. It is also great that bank loans have interest that is tax deductible (DeMerceau, 2012). A disadvantage of bank loans is that they are harder to obtain. If the loan can be obtained it the interest rate is generally very high.
An advantage to equity financing is that the funding is committed to your business. There is no interest on this type of financing so all money can go towards the business. The investors with equity financing are very interested in the business and are more willing to provide more funding if necessary. The increased interest in the business makes it easier to justify the extra funding needed because they all have the same goal for the business. Some of the disadvantages include the fact that equity financing is time consuming. It is demanding work and can take away resources from the business itself. The process of qualifying for equity financing is intrusive (Advantages and Disadvantages of Equity Finance, 2017). Those who are considering funding the business will look carefully at the past results and forecasts before making a decision on financing the company.
There are advantages and disadvantages to each of the three financing options. It is dependent on the objective of your business. The easiest of all the options seems to be equity financing because of the investors being as concerned with the business as the company owners themselves. The amount of time that goes into equity financing can be very time and resource consuming, but worth it in the end.