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Corporate Debt and Equity

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What are the main differences between corporate debt and equity? Why do some firms try to issue equity in the guise of debt?

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Solution Summary

There are two main types of financing for a business, debt or equity financing. This solution explores both and explains the difference between the two. It also explains why some firms try to issue equity in guise of debt.

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There are two main types of financing for a business, debt or equity financing. Debt financing tends to be the type of financing you receive from a traditional bank loan and equity financing tends to be financing you receive from venture capital into your business from outside investors.

The benefit of debt financing is that it is a fixed sum financing and you will pay down the debt over time to a zero sum balance without any further obligation to the lender. ...

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