Equality and debt case assignment 5 Essay Example | Topics and Well Written Essays - 750 words

Equality and debt case assignment 5 - Essay ExampleDebt finance has a fixed term for repayment. Like loans the terms can be either short or long and is normally raised from banks and small business administ ration (SBA). It has a fixed rate of interest payable. However equity financing is not repayable the lender has a right over the business and can participate along with the board of directors, in the annual shareholders meeting, to squander an active role in the decision making of the bon ton. It is generally raised by family or friends, who are normally called Angel investors (Samuels et al, 2000). Also financing can be got by take a chance capitalists, private equity firms and the investors are normally referred to as Venture Capitalists(Samuels et al, 2000). This form of financing does not have a fixed cost, but the cost varies based on the performance of the company. Also with newer investors becoming a part of the business makes the business more credible and gains highe r attention from the lenders network (Weston and Copeland, 1988).In debt financing there is a tendency of businesses to rely too much on the mode of financing, however if the company does not generate enough revenues to pay back the loans it could originator a lot of problems for the business ilk bad credit ratings and can even lead to closing down of the business. Also it makes the company untempting to investors. If the company has a lot of loans investors would view and classify the company as High Risk which would cause them not to make investments in the business (Samuels et al, 2000). The debt to equity ratio normally affects the cost of debt hence if the ratio is high it would make it difficult for the business to obtain debt financing. Both the sources of financing require to be considerably balanced, and it is essential that the company carries out enough debt to balance the equity investment however care require to be taken not to affect the chances of getting