Question

In 200 words or more:

How does one understand the various sources of capital, including debt and equity financing?

Do they have any similarities? Give an example of each

Answer 1

So various  sources of capital includes

1) Internal - So if there is an ongoing company, it can use funds like - Profits, excess cash reserves

2) External -

1. debt -raised from banks, corporate institutions
2. Equity - selling stake of the company to public or Institutions
3. Angel investors - for new startups. Further on venture capitalists
4. Crowdfunding
5. Self- investment

Debt and equity financing both have cost associated with it. We have to pay interest on the raised loans in case of debt financing

and for equity financing we sell stake of the company. so decision making capability is not limited to the owner/owners. They take part of the profits of the company, Then there are preferred shareholders also which takes precedence.