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Entrepreneurs must decide between equity financing and taking on a loan for the business. This decision...

Entrepreneurs must decide between equity financing and taking on a loan for the business. This decision may be challenging for most small business owners in the situation when they start or they need to expend a business. Therefore, entrepreneurs should evaluate advantages and disadvantages of debt and equity financing and determine which type of financing is best for their business. Discuss pros and cons of debt and equity financing. Determine which type of financing is best for your business. Provide examples and details that support your position.

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Answer #1

1. Finance with equity - This type of business financing involves financing the firm's operations and projects from the sale of equity shares of the firm to investors or shareholders.

Firm needs to share dividends from profits and share value to the investors or stakeholders, hence the investors interest depends on the firm's performance.

2. Finance with debt - This type of business financing involves financing the firm's operations and projects from taking or receiving debt from other organizations, government bonds, individuals etc.

Irrespective of the firm's finances, it pays interest and principal to the entity that provides the debt in this financing.

Equity financing is best for my business as it is a startup and requires capital from the investors without any expectation of returns in the short-term.

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