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Articles, Business

Equity Capital Vs Debt Capital

Equity Capital 

  • Represents the personal investment of the owner(s) in the business
  • Is called risk capital because investors assume the risk of losing their money if the business fails
  • Does not have to be repaid with interest like a loan does
  • Means that an entrepreneur must give up some ownership in the company to outside investors

Debt Capital

  • Must be repaid with interest Is carried as a liability on the company’s balance sheet
  • Can be just as difficult to secure as equity financing, even though sources of debt financing are more numerous
  • Can be expensive, especially for small companies, because of the risk/return tradeoff

 

 

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