Benefits of Debt and Equity Financing.
Debt and equity are strategies used to raise funds to finance or grow an upcoming business. Capital given to finance start-up businesses are known as debts. Companies that agree to do debt transactions also agree on the period that the debts should take before being paid back. Equity is the amount of money that people use to invest in the business. Debt and equity companies, therefore, merge the two sources of income to come up with a business. The companies that use the debt equity companies merge together to help recover the debts. Levels of production and performance in the companies and businesses are enhanced using the debts taken. The essence of the partnership is to ensure that the companies are not under pressure to pay the debts. Income and profits can be made before paying the debts as the debts are paid in instalments. Labour workforce and production machinery can be improved by the use of the debt. Debts are used to pay for rent and purchases of buildings used as stores or offices. Debts are of advantage as they come in handy when business are being started. A company’s production is raised through the use of debts by monitoring the use of the money. Equity, on the other hand, does not need to be repaid as it is the investments that an individual or the company puts forth. Companies that entirely use the equity as a start-up capital get the advantage of making more profit as there are no debts to be paid. The combination of the two strategies to create capital for businesses should be balanced to ensure that companies do not incur losses. The balancing of the sources of capital helps companies to manage funds and clear debts on time. The use of equity capital also helps to generate funds that can be used to open other branches or other business plans. Equity financing deals with sharing of profits between the stakeholders of a business and this is fair enough to all the people who invest. Profits are shared among investors depending on the percentage of investment that they put forth in the business. Business partners can learn, share ideas and create networks through the partnerships created by equity financing. Individuals who prefer running their businesses on their own can adopt the equity financing as they do not have to seek the opinions and the decisions of other people. The two approaches are all reliable depending on the type of business and the managerial tactics. Businesses that bring about a lot of income after a short period of time should be financed using the debt strategy. Equity method is reliable for businesses that take time to bring in profit.