Sunday, 27 January 2013

Common Stock Financing or Capital Debt Financing – How can you Raise It?

There are two methods to finance the requirements of a business. They are debt financing or equity financing. While discussing about debt financing, it is using debt or borrowing money finance to pay off the outstanding bills or finance the purchases. Capital debt financing refers to borrowing money, also called "capital", for the purchase or financing of real property or capital improvements.

The simple way to raise debt for a business is to take out a commercial loan from a bank. The banks will ask for collateral when you take out the loan with the business owner’s property such as home or investment account. You will have to pay off the loan amount within a definite period of time with a fixed rate of interest. Once you repay the loan, you may take out the same amount of loan again for your business with the same terms and conditions without the need of more paper work. Equity financing comes directly from the company or its owners. The profits that are re-invested into the company and are not share out as dividends are a form of equity financing.

It may happen that a company is not credit worthy for taking out a loan but has sufficient cash flow to make the regular payments. In such a case, leasing may seem to be a good option for real property. You need to know that there are many lease agreements that have a discount purchase option to buy land or equipment at the end of the lease term for a “balloon” payment which calculates previous lease payment towards the purchase price.  However, there are many contracts that may boost your net income and productivity and even provide you tax benefits.

While talking about equity financing, you need to know that it involves raising capital through the issue of stocks. This happens in numerous ways in the world of business financing. The business enterprise capital firms invest large sums of capital through the purchase of majority shares at the setting up of a business in order to produce capital through returns. In other instances, the companies increase money by publicly trading equity through the stock market. In case of other equity forms, the large companies invest in small companies by buying large sums of stock, sometimes sufficient to become majority owner and control the decision-making process of a company.