Series 79: Debt Vs. Equity

Debt vs. Equity

A fundamental question for every company that is trying to raise capital is whether to use debt, equity, or some combination of both as a source of finance. Debt involves an obligation to repay money. But debt offers an advantage that equity financing does not: the repayment of debt is tax deductible. Virtually every business relies on debt in some form, usually in the form of a bank loan or line of credit, but significant debt financing usually involves the issuance of a debt security such as a note or bond. This form of debt is often less expensive than the issuance of equity. However, the company must generate enough earnings to service the debt