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Debt Versus Equity Financing

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Debt Versus Equity Financing Paper
Ranithia Settles
December 16, 2013
ACC 400
Kylene Smith

In this reading the following objectives will be discussed, the definition of debt financing, equity financing along examples of each. This reading will also discuss which alternative capital structure is has more advantages and an explanation will be given.
Debt Financing
Debt financing is defined as the method of financing in which a company receives a loan and gives its promise to repay the loan ( (Entrepreneur.com, 2013). An example of debt financing is secured loans. Secured loans are loans that require collateral of some sort. There are several types of securities such as guarantors, who sign an agreement stating they will guarantee payment of the loan. Equipment provides 60- 65 percent of its valuable as collateral for the loan, and real estate is either commercial or private can be counted for up to 90 percent of its assessed value. Unsecured loans are typically short term as they require payment with six to eighteen months, Intermediate-term loans are to be paid back within three years, and then there are long-term loans that require payment from the cash flow of the business in five years or less.
Equity Financing
Equity financing is defined as method in which a company issues shares of its stock and receives money in return (Entrepreneur.com, 2013). Depending on how the equity capital is raised it is possible to bow out anywhere from 25-75% of the business. An example of equity financing is venture capital which is the most common financing used to finance high risk and high returned businesses. Examples of venture capital are individual venture capitalists which are investors that prefer to invest in industries that are similar to the investors industry. The other type is private venture capitalists whom choose to invest in technology related…...

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