What are the Merits of Equity and Debt Financing?
Merits of Equity Financing
The most significant merit of going with equity financing is that it doesn’t put you in the creditor-debitor relationship. The fund you are accumulating from the public remains with you as an asset, not a liability.
Hence, even if your business enters into bankruptcy, you need not worry about the repayment of the fund to investors.
Equity financing puts no extra financial burden on the company, helping it to focus on primary elements. Last but not least, companies tend to get more funds in equity financing than debt.
Merits of Debt Financing
Debt financing has numerous benefits. Foremost among them is that the lender doesn’t have any control over the company or its decisions, making the company run hassle-free with unity of direction.
Another benefit is that company gets tax relief on the interest paid on such loan or debt. Finally, it becomes easy for a company to track finances as interest is paid at a specific rate.
Debt vs Equity Financing: Difference? – Which Option is Best for You?
When a company wants to expand its work or reach, it requires funds or working capital, and accumulating such a tremendous amount of funds alone is not an easy task. So a company explores two ways of getting funds; debts or equity. Although debt and equity are two different ways to onboard funds for the company, both have their significance.
Table of Content
- What are Financing and its Types?
- 1. Debt Financing
- 2. Equity Financing
- Merits of Equity and Debt Financing
- Demerits of Equity and Debt Financing
- Debt vs. Equity: Which One is Better for Entrepreneurs?
This article will discuss the two options that every entrepreneur has to face in their journey. In addition, we’ll also discuss the differences and objectives. Finally, we’ll conclude the article with a rational decision about the best option for entrepreneurs. So, let’s start with today’s article.