◆ Different financing methods

Equity financing and debt financing are two different types of financing. Equity financing is mainly through the introduction of new shareholders through the capital increase of the enterprise, to obtain funds, the enterprise does not need to repay the principal and pay interest, but the shareholders need to share the profits or losses of the enterprise. Debt financing is obtained through borrowing, such as loans from banks or other institutions, issuance of bonds or loans from third-party individuals, etc., enterprises need to repay the principal and pay interest on time, and creditors do not enjoy the decision-making power of enterprises and corporate profits.

◆ The cost of financing is different

The cost of equity financing is higher than that of debt financing. On the one hand, the dividends that need to be paid to shareholders in equity financing are paid according to the profits after tax deductions, and the interest expenses incurred in debt financing are calculated before tax, so bond financing has the effect of tax deduction. On the other hand, in terms of issuance costs, the issuance costs of shares are higher than those of debts. Overall, the cost of debt financing is lower.

◆ The risks are different

Enterprises should consider financing risks when financing. There is a big difference between the risks of equity financing and debt financing. According to the characteristics of the two financing methods introduced above, the funds obtained from equity financing do not need to repay the principal and interest regularly, but share the benefits with shareholders and bear the losses. Therefore, the financial risk of equity financing is less than that of debt financing, which must be repaid on a regular basis.

◆ The impact on control is different

In terms of the impact on corporate control, debt financing outperformed equity financing. This is because under the equity financing model, as the share capital increases and the number of shareholders increases, the control of the company will also be dispersed, and in addition, the issuance of new shares will also lead to an increase in the number of outstanding common shares, which will lead to a decrease in earnings and stock prices in the short term. In contrast, debt financing will neither result in an increase in equity nor will it disperse control of the business.

◆ The effect on enterprises is different

Different financing methods can have different effects on businesses in a number of ways. For equity financing, the issued shares are the permanent capital of the enterprise, and the increase in capital will help enhance the reputation of the enterprise, which is conducive to the business operation of other aspects of the enterprise, and is also conducive to the debt financing of the enterprise. In addition, equity financing can resist risks and provide a strong guarantee for the steady development of enterprises.

For debt financing, debt can provide enterprises with more capital leverage, and convertible bonds and redeemable bonds can bring more flexible capital structure to enterprises. In addition, when the company's income is relatively good, the enterprise only needs to repay the principal and interest to the creditors, and does not need to share the additional income, which is also an advantage of debt financing.