How do companies decide in practice which route to follow in raising capital? The decision is complex and related to a company's balance sheet, market conditions, outstanding obligations and a host of other factors.© BrainMass Inc. brainmass.com March 4, 2021, 6:01 pm ad1c9bdddf
There are two ways in which a company can raise capital--debt and equity. Let's start with debt financing. This occurs when the company borrows money promising to repay both the principal and interest by a certain date--thus a loan. The downside of this is that if you fail to make payments, your might go into default and eventually lose your company. Debt can also take the form of bonds. Some of the advantages of raising capital via debt are:
1. Tax benefits--when you borrow money, you are permitted to deduct the interest expenses from your taxable income. ...