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BUSI603 DBForum4

BUSI603 DBForum4 - DB Forum Four Debt allows the qualified...

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DB Forum Four Debt allows the qualified borrower to access loaned funds, without the need for equity or the initial delve into personal assets. While debt does indeed offer a higher rate of return, it also increases the risk associated with financing (Lonenecker, Moore, Petty, & Palich, 2008). Debt financing is also one way the owner or owners of a business can maintain control of their company. Through the use of debt financing, owners are able to avoid outsiders gaining access to the reins of the firm. However, an important issue that arises when choosing which form of financing is best is the issue of control. If the owners are worried that they may lose control of the business or have to maintain accountability with outsiders or shareholders, they may be inclined to choose debt financing over equity financing. “Equity, on the other hand, is less demanding” (Longenecker, Moore, Petty, & Palich, 2008, p. 242). Equity financing enables firms to pay off current debt and use their equity to their advantage (Long Live Equities, 2004).
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