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Raising Debt or Equity Capital: Which Option to Use in Which Scenario
When a business needs to raise capital, it has two main options: debt financing and equity financing.
Both options have their own advantages and disadvantages, and the choice between them will depend on a variety of factors, including the company’s financial situation, its goals and objectives, and the preferences of its owners and stakeholders.
Debt Financing
Debt financing involves borrowing money from investors or lenders, typically in the form of loans or bonds.
The business is required to repay the borrowed funds, along with interest, over a specified period of time. Debt financing is attractive because it provides a predictable source of capital and allows the company to maintain control over its operations and decision-making.
Equity Financing
Equity financing involves selling ownership stakes in the business to investors in exchange for capital.
Unlike debt financing, equity financing does not require the business to make regular payments or repay the funds in a set time frame. Instead, the investors become owners of the business and share in its profits and losses.
