Answer to Question #205504 in English for elisa

Question

b) Considering your business idea, identify and evaluate the strengths and weaknesses of THREE sources of finance available to your business start-up. 

Answer 1

1.equity

strengths

a. Less burden as there is no loan to repay.

b. No credit issues due to previous credit unworthiness.

c. Provides for learning and gaining from partners who are more knowledgeable and experience.

weaknesses

a. Sharing profit with investors.

b. Loss of control of the business as ownership is shared.

c. There is the possibility of conflict arising due to differences in management styles.

2.debt

strengths

a. Retain control as the company belongs to the lender.

b. Tax advantage reduces net obligation

c. Ease of planning as the owner of the company.

Weaknesses

a. Good credit rating is required to receive financing.

b. Making repayments requires discipline to avoid defaulting.

c. Agreeing to collateral may put other businesses at risk.

3. debentures

strengths

a. Valuable financial protection and reassurance is provided for directors as regards their personal funds.

b. Control of the company by existing shareholders is not reduced, and profit-sharing remains in the same proportion.

c. Use of debentures can encourage long term funding to grow a business.

Weaknesses

a. No flexibility in their obligation to make interest payments on the debenture.

b. Restrictions in securing debentures takes away the management’s freedom to control or use the assets at will. 

c. By holding a debenture, the lender loses their right to vote and take a share of company profits.