Aasdaafas

Debt and equity financing is one of the major and important decision to be made by companies when it comes to funding the business operation. “Absolutely nothing is more important to companies than raising capital”, Steve Jefferson mentioned. But the way the funds are raised can have major impact on the success of a business. There are various satisfactions and dissatisfactions given when it comes to equity and debt financing.

When a company seeks debt financing, it takes the form of loan that must be paid over time (short term loan; less than one year or long term; more than one year), usually with an agreed upon interest level. The most common source of debt financing is the bank, followed a private company or even a family member or friend. Long term debt loan is adopted when business want to purchase assets and short term debt loan is adopted when business needs funds to run the company in daily basis.

Creditors (a person, finance company, bank or other organization) are that extends credit by giving a company permission to borrow money; (usually loan) to be paid back at a late date or period. A company’s relationship with the creditor is bounded by the terms of a contract between the company and the creditor under which the credit was provided and the company is liable and obliged to repay its lenders in accordance with the terms of the arrangement. If the company defaults, for example not paying the debt on the given due date or period, the lender is entitled to impose the loan contracts by using self help remedies stated in the contract (such as seizing and selling the security) or through courts. If a company is insolvent or nearing insolvency, their duty is to consider the interests of the creditors.

A company may agree to give a security over the company’s assets to make sure that they will comply with the terms of the loan (i.e. prompt payment). This is known as secured creditor and has the rights to obtain that asset given by the company as...