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Tip of the Day Put At Least 20% Down On A Home

Put At Least 20% Down On A Home - Your home is most likely the biggest purchase you will make in your lifetime, so when planning for the big day,...

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Equity Vs. Debt Financing

Normally for a business, there are two of the main types under financing sector namely the equity or debt financing. The debt financing is the type of financing that you will receive from any traditional bank loans, equity financing also tends to be the finance that you receive through a venture capital in your business from any outside investors. One of the advantages of the debt financing is simply that it is finite and also you will be allowed to be able to pay back the debt over a period of time to a completely nil sum balance and not having to oblige anymore to the lenders. The disadvantage of debt financing is that the traditional lender will be required to take a good look at the business as well as look at how long it has been in existence, from where the income is coming, the expenses as well as analyze the hard assets in order to forward the loan. In addition to this, the lenders normally also require you to guarantee the repayment of the given loan. One other disadvantage if that your business will also at the same time be burdened with some kind of regular payments which depend on the term and condition of the finance given.

On the other hand the advantage of equity finance or otherwise called as the venture capital is that you will receive regular money in exchange of the equity present in your business right from that of stocks to even some other form of equity such as gross or net sales and percentage of the income. One of the advantages of equity finance is that there will not be any monthly payment required to the investors. Normally instead of this, the individual will have to give up the ownership interest, normally errantly in the case.

Banks or traditional lenders will also have a look at the business but much differently as compared to the venture capitalists. Bankers normally require a zero risk position, which they provide for financing and will also reply on the economic operation of the said business giving very less regard to any potential of growth in the future. If you want to make sure that there is a good cash flow which is also backed up with the hard assets , but normally many small businesses always lack this and also would not be seeking for the required finance.

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