Question one: Different conclusions in the two videos
The two videos’ conclusions are different because the video on entrepreneurship gives details on why business owners need to opt for equity financing. It, therefore, advocates for a specific type of funding for the business. The second video, on the other hand, offers a comparison of the two models of financing. It leaves it open for the business owner to choose the best model of financing the business. Different metrics are used to assess the various financing options that include time, qualifications, repayment, and control the business lender will have in the business. There is an in-depth analysis of the different options available for financing a business.
Question two: Reasons why debt financing is more common
Different reasons can be identified, making debt financing more common method companies use to acquire assets and finance specific projects—first, debt financing a cheap financing option in the long-run. The use of equity financing means the lender has to claim Equity in the business. There is a dilution of the owner’s Equity through Equity compared to when using debt financing.
A firm will enjoy tax benefits through the use of debt finance. The interest on the debt is tax-deductible on the company’s return. Apart from lowering the loan cost, the company also reduces its tax liability during tax computation.
The use of debt finance means that the lender is entitled to being re-payed only for the agreed-upon principal and any accumulated loan interest. Therefore, the lender has no direct claim over its future profits, which is the case under equity finance. If the company is successful, the business owner will, therefore, assume all the company’s benefits. There are no external claims from investors into the business in terms of equity finance except when the company acquires debt from a financial institution with a loan having a variable rate, obligations due to the company can be forecasted with some degree of certainty. The company is well placed in the planning of its debt obligations.
There are little complications for the company to raise debt capital. There is no requirement for the company to comply with state and federal securities laws and other regulations. Different regulations have to be met by companies, including their valuation, before acquiring equity financing. Therefore, equity financing cannot be used as a reliable and timely method of financing company operations and meeting its financial obligations.
The early stages of projects require heavy investment in capital resources, necessitating a company to have a reliable outlay of resources. The early stages of companies with recurring revenue streams mean that a company is well-paced to increased its net cash flows through taking on more debt. Extra cash enables the firm to employ more people for its operations.
Appropriate amount of Equity
Equity financing is not supposed to be more than two and two-thirds of your income. Other metrics will be required by your lender to calculate the amount of date you can take to acquire your home. However, the ratios are placed at 1:2 where one is for the amount of debt and 2, the amount for Equity. The reason is that you are not supposed to be tied in terms of your loan repayments.