Financing Going Concerns

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Consider the pros and cons of equity versus debt financing. As a business grows, it may require additional funding to expand, and there are several ways to obtain it. Each option has its own risks and benefits, so it's important to understand what's at stake before making a decision.

Let's assume that taking your company public was a smart move: in posing questions like those that we've just listed, investors have decided that your business is a good buy. With the influx of investment capital, the little laundry business that you started in your dorm ten years ago has grown into a very large operation with laundries at more than seven hundred colleges all across the country, and you're opening two or three laundries a week. But there's still a huge untapped market out there, and you've just left a meeting with your board of directors at which it was decided that you'll seek additional funding for further growth. Everyone agrees that you need about $8 million for the proposed expansion, yet there's a difference of opinion among your board members on how to go about getting it. You have two options:

Equity financing: raising the needed capital through the sale of stock
Debt financing: raising the needed capital by selling bonds

Let's review some of the basics underlying your options.

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