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Tag: Demerits

Merits and Demerits of Debt Finance

May 4, 2020
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| finance

Debt financing means to borrow funds or to arrange for investments from external sources. Large scale businesses and organizations are not able to run all their affairs from their own capital so it is usual for them to take loans. The most prevalent example of this type of finance is the loans taken from banks. The amount of the loan is to be repaid in agreed installments along with interest at a specified rate.

Merits of Debt Finance:

Following are the merits of debt finance:

(i) Scope for Expansion: Debt financing allows business to expand its operations. New branches can be opened in other cities and countries. New lines of business can be adopted to increase revenues. The easy availability of credit encourages entrepreneur to take new risks and float new products. It also enables businessmen to increase the scale of their operations and to upgrade their products in time.… Read More

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Merits and Demerits of Equity Finance

May 1, 2020
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| finance

Equity finance means the owner, own funds and finance. Usually small scale business such as partnerships and sole proprietorships are operated by their owner trough their own finance. Joint stock companies operate on the basis of equity shares, but their management is different from share holders and investors.

Merits of Equity Finance:

Following are the merits of equity finance:

(i) Permanent in Nature: Equity finance is permanent in nature. There is no need to repay it unless liquidation occur. Shares once sold remain in the market. If any share holder wants to sell those shares he can do so in the stock exchange where company is listed. However, this will not pose any liquidity problem for the company.

(ii) Solvency: Equity finance increases the solvency of the business. It also helps in increasing the financial standing. In times of need the share capital can be increased by inviting offers from … Read More

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