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Report on Various Funding Sources - Dissertation Example

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Report on Various Funding Sources

The company has no debt and is equally divided in terms of ownership among five private individuals. Differing debt and equity funding opportunities present their own challenges, advantages, disadvantages, and sets of relationships, with equity financing offering greater flexibility on the surface and reduced impact to cash flows, but likewise compromised by its tendency to dilute control and to be of higher cost in the long term compared to debt financing. Debt financing, especially senior debt financing, offers the advantages of low costs in terms of lower interest rates, and of giving the borrowing company complete, unadulterated control of the company's destiny. On the other hand, debt financing impacts cash flow and hinders the company from using cash flow and profits to finance other projects. This is due to the payments that are required on a regular basis to service the debt. There is an opportunity for the firm to float shares in an initial public offering on markets outside of the UK, but this has to be explored in greater depth, given how any equity infusion dilutes ownership and control. On balance, and culling the insights from real-life companies employing differing modes of financing, senior debt financing is the best option for the company (FindLaw 2013; Advani 2006; National Federation of Independent Business 2013; Nolo 2007; Berman and Knight 2009; Terjesen n.d.; Ivashina and Kovner 2008; Kokemuller 2013; Peavler 2013; SimplyFinance 2007; DCA Partners n.d.; Doidge et al. 2011; Krantz 2013; Gan and Applegate 2013). II. Sourcing Funding for the Firm A. Funding Opportunities There are various camps and schools of thought advocating either debt or equity as the preferred mode of funding that yields the most benefits to firms. On the one hand are arguments for debt being cheaper sources of funding, and being sources of funding that does not dilute the ownership stake of current shareholders. This favors the interests of the owners of this firm, who have valid concerns about loss of control tied to funding options (Berman and Knight 2009). On the other hand, there are schools of thought that tout private equity as being of greater overall benefit to firms in comparison to debt financing, for various reasons as well Arguments are tied to the cost of either source of financing, with debt requiring, in some cases, lower returns on investment in comparison to equity infusions, where investors may require of the current owners higher returns, as well as voting rights and ownership rights commensurate to their investments. The rest of this report explores the different options and their implications for the company as well as the issues of interest discussed above (FindLaw 2013; Advani 2006; National Federation of Independent Business 2013; Nolo 2007; Berman and Knight 2009; Terjesen n.d.; Ivashina and Kovner 2008; Kokemuller 2013; Peavler 2013; SimplyFinance 2007; DCA Partners n.d.). The table below details the key points to consider relating to using either debt or equity to finance the project at this company, as well as to source on-going funds moving forward (DCA Partners n.d.): Table Source: DCA Partners n.d., p. 4 The key differences relating to the concerns of the owners of this company are with regard to level of involvement, which is higher for equity financing options, as well as costs, which is lower for debt financing, together with the role of the providers of the capital in board-level ...Show more


Report on Various Funding Sources Table of Contents 1. Executive Summary 3 II. Sourcing Funding for the Firm 4 III. Real-World Examples 13 IV. Glossary 14 V. Conclusion 15 VI. Referencing and Presentation 16 1. Executive Summary This report details the different funding options available to finance the ?…
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