Difference Between Equity Financing And Debt Financing


Most of the time, people mix up equity financing with debt financing, which is not quite correct. You need to learn more about their differences first, before working on any of the field. Equity financing mainly deals with issues, relating to additional shares of the current common stock to any of the investors. With some extra amount of share of common stoke issued, the previous ownership in the form of stockholder’s percentage will decrease. Well, in case of debt financing, this is not the case. Debt financing mainly means borrowing money and not letting go of your ownership. It further comes handy with strict conditions or the covenants, along with addition to pat principle and interest at specified dates.

More on debt financing

Debt financing is mainly associated with covenants or strict conditions along with additional means of paying up interest rates and principals at current specified dates. If you fail to meet these debt requirements, it might result in some severe consequences. In some parts of the world, interest level on debt is deductible expense, whenever you are computing taxable income. On the other hand, adding too much of debt can further increase the future cost of company under borrowing money segment, and it further adds risk to the firm.

Working on stakeholder’s equity

In case, you were about to reduce entire balance sheet of the corporation into skeletal form, you might end up with an accounting equation. Here, assets are equivalent to stockholder’s equity and liabilities. Stockholders’ equity can be termed as the major component of the balance sheet of any corporation. In case, you happen to rearrange this equation, you will see that stockholder’s equity is the main difference between liability amounts and asset amounts. Stockholder’s equity is more like what an owner’s equity will be to sole proprietorship. Owners of these corporations are primarily termed as stockholders, as they hold shares of the firm. These stock certificates are further termed as evidence of ownership of any particular corporation.

More on bonds payable

Bonds are primarily termed as long term debts. For most of the people, bond can be like IOU, which has been issued by the corporation and purchased by investor for cash. The corporation is here to issue bond for borrowing money from investor, who in other hands, becomes a bondholder and lender. Bond is further termed as formal contract, which mostly requires issuing corporations to pay to the bondholders. Interest is solely based 6 months, depending on the interest rate of the shared bonds. On the other hand, it further requires face amount on the maturity date of the bond. Check out for best credit card consolidation or other related topics online and learn to solve your problems with ease.

Advantages to look out for

There are some significant advantages available for any of the firm, while they are willing to issue bonds, in place of common stock. Bonds are not going to dilute the current ownership interest of the current stockholders. On the other hand, bonds are said to have lower cost, when compared to common stock. If you are looking for credit card relief, then you must consult an expert first.

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