difference between Equity Financing and Debt Financing

What are the different types of financing options are you are aware of? What are the forms of business financing that you want to go for? Do you know the difference between debt financing and equity financing? Why are the most important things that is necessary for all business entrepreneurs to keep in mind while looking for financing choices for their businesses? The team at Credit Health Care is here to help the readers know about the difference that exists among equity as well as debt financing and the better between the two.

difference between Equity Financing and Debt Financing

Now, the time has come for you to understand the major difference between these two popular forms of financing out there. The article tries to define the major advantages of going for each form of financing option.

Equity Financing

Do note that equity financing is a method of financing in which a company issues shares of its stocks to obtain money in return. Also, along with that, to fully understand the concept of equity financing one must be clear of the concept of venture capital. This is the money to seed an early stage, emerging and emerging growth companies. The amount of equity financing greatly depends on the stage of a business and the expected risk. The relationship between a venture capitalist and the entrepreneur is also a major factor. Equity financing is normally associated to a startup and emerging businesses. The other choices out there are Seed financing, startup financing, second-stage financing and also bridge financing.

Debt Financing

Let us talk about debt financing. This term is defined as a method of financing in which a company receives a loan against the promise of repaying the loan. You also need to understand that, this particular method of financing with high risk for the lenders but there are a lot of factors involved which bounds the debtor to pay back. The financing includes both secured and unsecured loans. Along with that, in case of unsecured loan the borrower’s credit worthiness is the main security. This type of loan can range from a few hundred dollars to thousands of dollars all depending upon the borrower’s relation with the bank or any borrower for that matter. In addition to that, the different forms of loans which are available to loan buyers as part of the debt financing are long term loans, short term loans and also intermediate term loans.

Bottom Line:

So now, you have better understanding of the different financing options which are available for the business owners as well as those people who want to improve their financial condition. Moreover, you need to have complete knowledge of the different forms of financing choices which are out there in the market for you to choose from. Along with that, in an earlier post, we have talked about vital investment banking tips which is important for all to know about. Thus, the time has arrived for those who are always on the lookout for finances, do understand the difference between them and make the right decision. However, you should never forget to provide the valuable feedback on the same in the below comments section!

Leave a Reply

Your email address will not be published. Required fields are marked *