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The Advantages and Disadvantages of Debt and Equity
Undoubtedly, to start and develop a business, people need to have specific financial resources. There are different ways to get them: for example, borrowing from a bank or cooperating with investors. Each of these methods has advantages and disadvantages, but both provide a right to exist. In particular, borrowing money from a bank is one of the most common ways to get money for a business. This path is so popular because if the event is successful and the debt is issued, the business person is no longer obliged to give the money to the bank (Inc. Staff, 2000). This means that they will be able to keep all future profits. On the contrary, cooperation with investors implies a regular deduction of interest, which may not suit many business people.
In addition, the benefits of borrowing money from a bank rather than a venture capitalist can be noted in other areas. For example, many business people want to have full rights to their own business. This means that it will be psychologically challenging to share this enterprise with other people, investors. With a bank loan, this problem does not arise, as the business is wholly owned by one person or a group of partners. Besides, long-term profits in both cases are different, whereas it is also a crucial aspect of any business. By borrowing from a bank, a business person will potentially receive more, since they will not pay interest to the investor throughout the entire existence of the business. Undoubtedly, this is a significant advantage, since it allows earning substantial amounts of money and not share it with anyone. Thus, in many situations, assistance from a bank seems to be much more reasonable than from investors.
Reference
Inc. Staff. (2000). The lowdown on business loans. Inc.com. Web.
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