3. We have discussed that financing for businesses generally comes in one of two
ID: 389364 • Letter: 3
Question
3. We have discussed that financing for businesses generally comes in one of two forms, debt or equity. a. To the entrepreneur, what are some of the advantages of taking on debt to b. To the entrepreneur, what are some of the disadvantages of taking on c. To the entrepreneur, what are some of the advantages of giving equity in d. To the entrepreneur, what are some of the disadvantages of giving equity e. To the investor, which form of financing represents the higher risk, debt or grow their business? debt to grow their business? exchange for financing the growth of their business? in exchange for financing the growth of their business?Explanation / Answer
Ans 1
One doesn’t have to use own money, it can be saved for other personal or professional operational purposes. Most of the businesses run by taking debt from market- from people/ banks/ relatives/corporates/ others, to reduce the total financial load or risk on one-self. An Entrepreneur can work with some relaxation in this case.
Ans 2
One can go in depression if business outcomes are not positive to repay the debt owned. This way whole situation personal and professional life can damage. Taking too much debt sometimes become difficult as well, due to less profits/ revenue/ market conditions. So things can go bad for anyone, risk increase, payback for self and to others become difficult.
Ans-3
Giving equity can be good, depending on the amount value, as you don’t have to take much debt from others. It is a positive sign of self capability and confidence to get good business results in targeted amount of time. It also creates a good brand image and perception in other stakeholders’ minds as well, that company is supported financially from equity.
Ans-4
Giving too much equity can be bad, as the whole load is one. In case the profits and revenue are not up to the mark, one will see it as a loss and finally at some stage may lose his confidence to grow positively. You won’t have enough working capital for daily operations and investment, if too much equity is invested in first stage. And losing business creates a negative impression in other’s minds.
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