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Comparing and contrasting debt and equity financing

Prepare a paper comparing and contrasting debt and equity financing. In your paper, discuss the following questions:

What is debt financing? Provide at least two examples.
What is equity financing? Provide at least two examples.
Which alternative capital structure is more advantageous? Why?

Be sure to properly cite reference. If you used an electronic source, include the URL.

Solution Preview

A brief overview of the basic types of financing may be helpful to understanding which options might be most attractive and realistically available to your particular business. Typically, financing is categorized into two fundamental types: debt financing and equity financing.

Debt financing means borrowing money that is to be repaid over a period of time, usually with interest. Debt financing can be either short-term (full repayment due in less than one year) or long-term (repayment due over more than one year). The lender does not gain an ownership interest in your business and your obligations are limited to repaying the loan. In smaller businesses, personal guarantees are likely to be required on most debt instruments; commercial debt financing thereby becomes synonymous with personal debt financing.

Equity financing describes an exchange of money for a share of business ownership. This form of financing allows you to obtain funds without incurring ...

Solution Summary

Comparing and contrasting debt and equity financing is examined.