Loans and Equity

Loans and Equity

Types of Loans and Equity Available To a New Business

Equity Capital

Equity capital is defined as the money that is invested in the business and is not returned to the investors. This represents the risk that is taken by the investors and also represents the ownership that is taken by the people who have invested in the company. This capital, unlike other sources of funding, is not intended to payback, which is why a huge percentage of risk is involved (www.businessdictionary.com).

Debt Financing

Debt financing is adopted by a company when it does not enough cash. It is acquired by selling bonds, notes or bills. There are institutions, as well as, individuals who lend money and become creditors of the company after lending (www.nfib.com). They are promised with an interest and principal as repayment.

Equity Financing

Equity financing is done when the company sells preferred or common stock to individuals or institutional investors. The money invested by them is used by the company and in return, the company offers them dividends on the stocks that they have purchased. Ownership is also provided to them when they purchase these stocks (www.nfib.com)

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Grants

Grants are defined as non-repayable funds that are disbursed by a party who maybe a corporation, a trust, a government department, an educational institution, a non-profit organization or an individual. These are provided by means of a grant writing process that helps in raising funds for the company.

Identify at least one positive and one negative aspect for each of the 7 (a) loan programs.

Special Purpose Loans Program

Special Purpose Loan Programs are the ones that are available for businesses that are affected by NAFTA. The main purpose of this loan is to improve the pollution control system and also provides assistance for the Employee Stock Ownership Plans. An advantage of this type of loan is that there is a backup plan for the NAFTA agreement in case the business fails. On the other hand, a disadvantage is that the loan is only available for special purposes that are outlined by the SBA loan programs (SBA, 2013).

SBA Export Loan Programs

This type of loan is available specifically for small export businesses by ensuring that the business is provided with the right and appropriate funds that are helpful for expanding and developing the export business. One great advantage of this type of loan is that the company is able to work in the best manner as ...