Businesses often need external funds to maintain their operations and invest in future growth. The funding of a business is vitally important.

Required:

1. Briefly explain the main benefit for companies having debt finance (loans and borrowings) and discuss the possible risks and problems facing companies that have very high levels of gearing, particularly where there is intense competition in the market and/or where there is a downturn in the economy
2. Ordinary share capital and retained earnings are two main sources of equity finance for a company.

Discuss the advantages and disadvantages of each of these sources.