Knowing the differences between taking out a loan and bringing in an equity investor are essential to choosing which is right for you. Small businesses seeking capital basically have two options—finding business loans or securing equity investments.
Capital contributed by the owner or entrepreneur of a business, and obtained, for example, by means of savings or inheritance, is known as own capital or equity, whereas that which is granted by another person or institution is called borrowed capital, and this must usually be paid back with interest.
Under a classical tax system, the tax-deductibility of interest makes debt financing valuable; that is, the cost of capital decreases as the proportion of debt in the capital structure increases. The optimal structure would be to have virtually no equity at all, i.e. a capital structure consisting of 99.99% debt. Equity capital is obtained from A. Insurance companies B. Credit unions C. Bondholders D. Banks E. Stockholders
Jan 24, 2019 · Takeaway: Calculating the return on equity for a privately owned business and understanding the implications of not achieving market-driven cost of capital. I am a big fan of Robert Slee, an investment banker, author, and investor in the middle market. One of the hardest decisions facing small business owners is how to obtain financing for their business. Most business owners really have two options: take out a loan or sell a piece of their business for start-up cash. Follow along as FindLaw helps you explore the different options that may be available to you. Choosing between Loans and Equity Question 34 2 out of 2 points For a corporation, equity capital is obtained from Selected Answer: e. stockholders. Answers: a. insurance companies. Question 35 2 out of 2 points When Dell Computer allows workers in a foreign country to provide technical assistance to its customers,...