Explore BrainMass

Debt Versus Equity Financing

We know that debt and equity are the two sources of financing for businesses. Equity comes from owners and shareholders who take business risks when investing their money and involves certain risks for those owners.

What is involved in a company's efforts to obtain debt financing from a bank or commercial funding source?

What risks does a bank or other lender incur?

What risks does the company incur?

Solution Preview

Lender risks:

1. not being repaid in a timely manner
2. losing a banking customer as a result of a bad loan
3. having credibility issues with the financial data provided by the customer
4. poor customer cash flow to meet payment obligations
5. decline in sales or product acceptance by the ...

Solution Summary

The solution lists 7 types of lender risk followed by 10 types of company risk in using debt financing for expansion or other purposes.