Debt Capital vs Equity Capital

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Category: Business and Industry

Date Submitted: 07/28/2013 09:16 AM

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At numerous times in the life of a company there are going to be requirements for outside assistance in order to grow the business. One requirement will be the need for additional capital.  Choosing which financing vehicle is best for your company is very important. It’s choosing the right tool to fix the problem. Deciding whether to seek out equity capital or debt capital is the first step. Usually companies trying to get equity capital are very early stage with little or no real assets. On the other hand companies on their way to a steady growth curve use debt capital. Debt capital is like a loan it must be repaid while Equity capital is raised by a business through other resources.

Our research focused on the differences of equity capital and debt capital. We all agree but have different ways of explaining each type of capital. Debt Capital is usually for those just getting started and have not yet fully established the business. Equity capital is for those companies more established and able to hold public offerings of stock, bonds or other types of incentives in or to get investors to contribute to the capital.

I (Lashaunda) say that Debt capital is represented by funds borrowed by a business that must be repaid over a period of time, usually with interest. Debt financing can be either short-term, with full repayment due in less than one year, or long-term, with repayment due over a period greater than one year. The lender does not gain an ownership interest in the business and debt obligations are typically limited to repaying the loan with interest. Loans are often secured by some or all of the assets of the company.

(Johnnie) explains that Debt capital is capital, usually money, raised through issuing bonds. Although most of the time the capital raised money, could be other goods of value as well. The capital raised must be paid back to those who finance the debt. To raise capital, companies have a number of different options. Of course, the purpose...