Question

Identify and discuss business financing options.

Answer 1

There are various options available for financing the business expansion. These are explained below:-

1. Common stock: This is the form of equity financing wherein investors can provide funds to a company in return for getting the allotment of common shares in the company. That is investors are able to get ownership in the company to the extent of investment made by them and the common shares allotted to them.

2. Preference shares: In this form of financing, the business allots preference shares to the investor. This form of shares takes precedence over commons shares with regards to dividend payment and also claim to company assets in the case of liquidation.

3. Retained earnings: The company can use the net profit generated through operations and plow back the money back into the company to fund the business expansion.

4. An issue of bonds: The Company can also issue bonds in the capital market and can raise money for expansion. The issuance of bonds will enable the company to get the tax advantage on the interest accrued and paid to the investors.

5. Bank debt: The Company can also raise loans from a bank. This loan can be secured or unsecured depending on the risk assessment of the company by the bank. Again interest charges are tax exempted for the company.