Hello Allen. I must admit that your post is informative and incisive since it presents a clear-cut distinction between equity and debt financing. For businesses that are not trading -publicly, the capital options are usually limited to short-term and long-term loans from financial institutions, friends, and family. However, the interests payable for most of these loans may discourage small business from accessing such loans. Furthermore, most of the aforementioned loan options require that a client offer security; a property that can be claimed by the loan provider in the event that the establishment fails to honor its due loan. From this week’s reading as well as your post, I have learned that for publicly traded companies, capital options are broad. Since such entities have highly-priced assets, they are eligible for high long-term and short-term loans. Furthermore, the fact that they can offer shares to the public allows the companies to finance their operations without experiencing many hurdles.
Cory
Hello Corry, I must that is very observant of you to notice that certain trends are favoring debt to equity. Firstly, it is noticeable that firms are not shying away from getting loans to buyback ownership (shares). The trend can be explaining in light of the perceptive of managers regarding the market. For instance, if managers project a future rise in share prices, they may buyback the securities so that they can sell it at a prospectively higher price at a later time. Furthermore, companies opt to take short-term and long-term loans when the interest rates are low. Wholesomely, I think to find the right balance on when to borrow and when to sell stocks is essential in ensuring that a company amasses capital without incurring higher costs in the acquisition of the capital
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