Debt versus Equity Financing Paper Essay

In the accounting industry, financing remains an important concept, as many organizations argon reliant on them for fiscal stability and longevity. Although there ar a plethora of financing options and types to choose from, the focus of the work entrust range around debt and rectitude financing. These two commonly used pass waters of financing atomic number 18 important as they are both unique in how they are utilized. The author of this piece will address these two financing options small-arm providing examples of each and addressing which capital structure is about advantageous.Debt FinancingDebt financing is the function of borrowing m cardinaly from a lender such as a bank. These financings option comes in the forms of loans both secure and unsecured. Security involves a form of collateral as an assurance the loan will be repaid. If the debitor defaults on the loan, that collateral isforfeited to satisfy payment of the debt (Entrepreneur, 2014, p. 1). In closely cases a lender will ask for some time of warrantor on a loan and least often times will lend based on name recognition or status. genius of the most common sources of debt financing is seen within startup railway linees where debt financing is often provided by friends and family instead of commercial lending institutions.When borrowing bullion from relatives or friends, have your attorney draw up legal papers dictating the wrong of the loan, as formalized documentation (Entrepreneur, 2014, p.1). A nonher form of debt financing that is most common occurs with credit cards by means of a credit line. character reference cards are used to provide a way to businesses to pick up several thousands of dollars quickly without going through the hassles of getting approved for a loan and filling out vast amount of paperwork (Entrepreneur, 2014). Though this mode is very popular it is important to take denounce that the interest set up collect if not monitored as this debt can add up qui ckly. loveliness FinancingUnlike debt financing, equity financing involves raising capital through merchandising shares within the business. rightfulness financing essentially refers to the sales of an will power interest to raise funds for business purposes (Investopedia, 2013, p. 1). This form of financing does not just include dole outing common equity but it too consists of selling preferred stock, convertible preferred stock, and warrants. When a startup association gains success it will attain equity as it evolves. Since startups attract a vast amount of investors at different stages of the companys growing cycle, different forms of equity are used for the businesss financial require.Convertible stock is comprised out as a loan, which the company is compel to repay and if company meets the specified benchmark in terms of performance, the complimentary balance of that loan is then converted into an equity stake in the business (Merritt, 2013). Companies can also attain capital by selling shares to investors. This allows a company to give up a piece of itself as a way to raise money to finance growth. Small, privatelyheld companies sell shares to private investors, who then hold equity within the company (Merritt, 2013, p. 1). This is one of the quickest way for obtain capital to finance growth for a business, especially if it goes public.ConclusionThough both of these methods of financing are advantageous for a business to grow and obtain capital it is important to notice which of these forms are most advantageous. In terms of raising mass amounts of money for growth and business operations, it would be most advantageous to utilize equity financing within the business as this provides are way for the business to attain large sums of money by selling shares. It is important to note that keeping account of the number shares is important as the business needs to ensure it maintains the majority of 51% of more to negate hostile putsch from competito rs and other businesses. At times one financing on both forefront can seem to have more advantages then the next it is important the a business tries to utilize both in rove to maintain balance and control of the business for optimal success.ReferencesEntrepreneur. (2014). Debt Financing. Retrieved from http//www.entrepreneur.com/encyclopedia/debt-financingInvestopedia. (2013). Equity Financing. Retrieved from http//www.investopedia.com/terms/e/equityfinancing.aspMerritt, C. (2013). What Are Examples of Equity Financing? Retrieved from http//budgeting.thenest.com/examples-equity-financing-23831.html