Advantages of Using Debt and Equity Financing.
Upcoming businesses are funded and financed by a strategy known as debt and equity. Capital given to finance start-up businesses are known as debts. Companies that agree to do debt transactions also agree on the period that the debts should take before being paid back. Equity is the amount of money that people use to invest in the business. The two resources are merged together to come up with a company or business. The companies that use the debt equity companies merge together to help recover the debts. Companies that take debts do so to improve the levels of production in a company. The essence of the partnership is to ensure that the companies are not under pressure to pay the debts. Debts paid in instalments allow room for the companies to make profits and gains. Levels of production are increased by the use of debts to get more production machinery and labour workforce. Debts are used to pay for rent and purchases of buildings used as stores or offices. Debts are of advantage as they come in handy when business are being started. The partnership programmes ensure that money is used appropriately to cover for all the debts accumulated. Equity, on the other hand, does not need to be repaid as it is the investments that an individual or the company puts forth. The use of equity is highly recommended as income is saved and does not go to payment of debts. Production losses in a company can be avoided by balancing and maintaining the ratio between equity and debt. The balancing of the sources of capital helps companies to manage funds and clear debts on time. Equity enables a business to incur profits that can be directed into creating other business ventures as well as expanding the business. Investors in a company or business share the profit as per the production rate and this is fair to all. Profits are shared among investors depending on the percentage of investment that they put forth in the business. Business partners can learn, share ideas and create networks through the partnerships created by equity financing. Individuals who prefer running their businesses on their own can adopt the equity financing as they do not have to seek the opinions and the decisions of other people. The two approaches are all reliable depending on the type of business and the managerial tactics. Debt financing can be preferred when starting up businesses that attract quick profit. Equity method is reliable for businesses that take time to bring in profit.