Pros & Cons of DEBT Financing

$$ The advantages of debt financing include lower interest

rates, tax deductibility, and flexible repayment terms.

$$ The disadvantages of debt financing include the potential for

personal liability, higher interest rates, and the need to

collateralize the loan

Angel and venture capital

A venture capitalist is a person or firm that invests in small companies, generally

using money pooled from investment companies, large corporations, and

pension funds. $...$ An angel investor is an accredited investor who uses their own

money to invest in small businesses

Extension:

a$)$ If you were to start a new business retailing Premium Sneaker, which of

the following three sources of Equity Financing would you choose? Explain

why!

A$)$ Circle your Choice:

a$)$ Relatives and Friends b$)$ Angels and Venture Capitalists c$)$ Partners

B$)$ Name one $(1)$ Pro and Con of Each choice:

a$)$ Relatives and Friends b$)$ Angels and Venture Capitalists c$)$ Partners

PROS$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

CONS$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

c$)$ I chose$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$ equity financing because...

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Lesson Objectives:

$$ Can you describe some specialized sources of financing?

$$ Can you explain the advantages and disadvantages of debt financing?

$$ Can you identify the advantages and disadvantages of equity financing?

$$ Can you describe how debt and equity financing affect the balance sheet?

Vocabulary: angel investor; bank debt ratio; barter financing; collateral; co$-$signor; credit union;

customer financing; debt financing; equity financing; venture capital