Advantages And Disadvantages Of Financing For Jacqui Llc

Debt capital is beneficial because the providers of the debt will not try to control the affairs of the company. This will allow the company to grow without having to worry about any interference from the capital providers.

| |capitalist in an early-stage company. It is for a Series A Convertible Preferred Stock round of company financing. |

Venture Capitalists are a company or wealthy individual who is prepared to invest in a young or new business . Obtaining Venture Capitalist finance can be highly beneficial to a small business as it may be able to acquire a large amount of capital, of which would not have been possible through other methods of finance, such as a bank loan . Venture Capitalist investment is further financially viable as a business is not obligated to repay the investment it receives. This method of finance is based upon the investor’s decision to take a risk on a business in anticipation of its success. In addition to its financial beneficence, acquiring this form of capital can provide a small or new business with valuable business expertise, as investors are able to provide key advice and guidance as well as industry connections. Making better decisions can be vitally important for a business’ growth .

If markets are tight, lenders may not be willing to lend to the company at interest rates that the company can afford. Companies may be restricted internally by limits of borrowing (e.g. in the company’s organizational documentation) or externally by other financing documents to which it is a party (e.g. by covenants on debt incurrence in other loan agreements or indentures to which the company is a party). The existing capital structure of a company also plays a large part in how much a company can raise through its financing options. If a company is already severely leveraged, the company’s only financing option may be to pursue an equity offering. If a company is not highly leveraged and the company’s debt ratios (i.e. the ratio of EBITDA vs. total interest costs) are in an acceptable range for lenders, a company will be better positioned to obtain debt financing.

There are two general forms of financing debt and equity. There are advantages and disadvantages to each, so determining how the company will be financed needs to take that information into account. Debt creates an obligation it must be paid back through the company's cash flows. This in turn increases the riskiness of the company to the owners and it also reduces the opportunities that the company might have for expansion. Also, debt is hard to acquire for a new business. Banks are unlikely to lend to an unproven business, and they certainly will not lend a substantial amount to such a business. Credit cards can be maxed out to start the business, but the high cost of cards makes this a very high risk option.

This report is aimed to justify the choice of the source of funds for the business that the team has been planning, and identify the cost-effective and appropriate funding method that will likely to invest in the venture. To start-up with the report, a brief introduction and discussion of the business will be addressed, then follow-up with both the explanation to the attraction and risk for the business in order to pose a more accurate picture when analysing the right funding method.

The first goal in managing your own business is financing your business. The financial aspect of running your own business is very significant because it is the component of a company’s operations. As the head of their organization, entrepreneurs should take into consideration by following two simple steps: (1) Acquiring Financing and (2) Account Issues. The first step is acquiring financing. They are many different ways to acquire finances when dealing with the business field. In the article, “Financing Your Business” by “Small Business Resource Center”, it states, “Businesses can find initial financing in a number of ways. Angel investments and venture capital are invested in companies in return for high profits and partial control of the enterprise. Businesses can also take on financing in the form of debt. Debt financing involves a company taking a loan from a lender and guaranteeing it will repay the debt owed to that lender, with interest, by a specified date.” This quote states that the ways to acquire

The way the business is funded for its operation and business plans is a crucial factor for the long-term performance of the business. Two most fundamental financing methods include debt and equity financing which will be discussed and evaluated. Equity financing is a method of raising fund from investors with the promise of a share in business ownership. Debt financing is obtaining a loan from external party separate from the business for example the bank and usually involves incurring an interest payment. Advantages of debt financing include protection of ownership and tax reduction. Lenders have no claim on business ownership and debt financing ensure retained ownership. Another benefit includes tax reduction, the repayment of debt is considered as an expense for the business leading to a reduction in tax. Disadvantages include the repayment and lender claim on business asset. For debt financing there is a fixed repayment date, while equity financing does not require repayment. Even when the company is making a loss, the business needs to make debt repayment regularly for example in a monthly basis to lender such as bank. Usually when business default its debt, the lender can claim its assets as collateral. Interest rate is an integral part of debt financing. Due to inflation, the value of the same amount of money diminish overtime as a result, there is an interest rate for all loan. Long-term loan is comparatively more costly than

MNCs can raise capital through bank loans, personal loans, bonds and credit card debt. This method is a debt capital. The cons are it bring additional burden of interest, which is the cost of debt capital. In addition, the payments must be made to lenders. The pros are the cost of debt capital tend to be lower than the cost of equity capital. MNCS can also raise capital through equity capital, which is from the sale of shares of stock. The pros are that the company do not need to repay shareholder investment. The returns can be from the payment of dividends. The cons are the owners are beholden to the shareholder and have to ensure the profitability of the business to pay the dividends. Equity capital are costlier than debit capital. MNCs can raise capital through special method, including international trade loans, international lease and international program such as BOT. The pros are MNCs can decrease their whole taxation burden, transfer capital and lower the political risk. The MNCs can get large amounts of capital and wide source of capital. The cons are the high cost to raise capital, the long cycle length.

Expanding globally can be very lucrative for a corporation, however it is very risky as well. To, have a smooth transition when expanding globally, a corporation is going to require capital. When looking to raise capital, corporations have several options to choose from. One of the most common options to raise capital that corporations have is debt financing. Debt financing is when a corporation sells bonds, bills, and notes to individuals. (Investopedia) Another form is equity financing, which allows corporations to raise capital by the sale of shares. (Investopedia) In this assignment, I will be discussing the advantages and disadvantages of corporations using debt to gain capital.

Investing in external sources of finance can include using bank overdrafts, loans and venture capitalists, all of which my business would use. Bank overdrafts are good because my firm would only need to borrow as much as it requires when it needs it most. But the disadvantage can include it being very expensive and banks can insist being repaid within 24 hours which can be a problem. Therefore this is mainly going to be used for occasional cash flow problems, for example over tight times e.g. January and February. I would also use loans, as these can be secured quickly and used in a large number of ways. However borrowing too much money can lead to decreased cash flow and payments can even overtake income in some cases. Venture capital’s would also be a very good way to source finance externally, this is because usually want to contribute to the running of the business and bring in new experience and knowledge which could be vital to help the business grow. Whereas, they may require a substantial part of the ownership of the company, which could be a disadvantage because they would be receiving a substantial percentage

As a startup, there exists a plethora of obstacles a firm must overcome before it can become a successful company. The earliest, and arguably most critical, hurdle a startup must surmount is deciding which method of financing their startup requires. It goes without saying that choosing the best method of financing is crucial to a firm’s success as a startup. Nevertheless, while we analyze when a firm implements said methods of financing, it is important to also look at the stages of financing a startup undergoes. By understanding these stages of financing, one can have a sharper grasp as to when and why a firm might favor a particular financing option.

This article gives an overview of the entrepreneurial finance literature. The studies reviewed highlight the sources of finance for the entrepreneurial firms. One of the basic difficulties in starting and growing a business is getting the initial capital to start up a business. Same is the case in order to grow the business further. To obtain initial financing, the entrepreneur has to think about the source of funds along with the type provided. The initial source of funds almost always comes from individuals-family and friends or private individual investors often called angels. These sources provide over 80% of the funds for startups in almost every country and are the key to bringing innovation to the market (Gary Gibbons, Robert D. Hisrich, Carlos M. DaSilva. 2015). The study indicates that the most common sources of entrepreneurial finance are angel investors, venture capital funds, corporate investors and financial bootstrapping.

The financing of every business is the most fundamental aspect of its management. Get the financing right and the company will have a healthy business, positive cash flows and ultimately a profitable enterprise. The financing can happen at any stage of a business 's development. On commencement of your enterprise the business entity will need finance to start up and, later on, finance to expand.

I am grateful to Mr. R. C. Agarwal the mentor of the Seminar Paper for giving me the opportunity to write a Seminar Paper on the topic “Short-Term Financing & SMEs”. I thank him for his suggestions & guidance throughout the Seminar paper with full attention and dedication.