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You have just started your business. However, you now require a cash infusion of $100,000. Do...

You have just started your business. However, you now require a cash infusion of $100,000. Do you secure debt or equity financing? Why?

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Answer #1

As i have just started out my business, i would go by equity financing because of its less riskiness character. A new business might not generate any positive cash flows in the initial years and may even make losses. So it might not able to pay the principal as well as interest component on debt and can go bankrupt as debt is a loan component.

Whereas equity financing, is like buying a stake in business for long term capital appreciation. It doesn't have to pay back any principal or interest to investors. The return on investment and cash flows can be re invested in the business for more profitable opportunities. Therefore there is less risk.

I hope this makes sense and helps you

Took a lot of efforts

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