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Financing And The Capital Structure Essay

950 words - 4 pages

Once one decides to start a business, there are a lot of things to consider. One of the first things that will be needed is capital. There are several options when raising capital, some are high risk others are stable. How a business owner chooses to raise capital will depend on what type of risk they want to take and how much capital the firm needs.
Raisings Capital for Business
Whether you are just starting out, or you have been in business for years there is one truth for every business, they all need to raise capital. One piece of advice I would start off with would be to do your research before venturing out.
Debt capital is a common method of raising capital, especially for new start ...view middle of the document...

Often you can obtain equity capital from friends and relatives. The major advantage of equity capital is you can venture into your business debt free. When weighing your options the disadvantages are that it can take time to raise the capital, and there is at times, shame in asking friends and family for money (Sherman, 2012).
Selecting and Investment Banker
There are many methods for selecting an investment banker, doing your homework is essential. One thing you want to be sure of is that they are fully capable to your needs. If you are selecting for a corporate account, you need to be sure that they know the ins and outs of corporate finance. Looking for a banker that has a record of success with IPOs (Initial Public Offerings) specifically in your field of business will prove favorable. You should also factor in distribution capabilities. How large is their sales force? Do they have the resources to handle your account along with other accounts the firm may handle? Valuation,or worth should also factor in. You may not select an investment banker with the highest valuation; however you do want to ensure they measure up. Their valuation, although significant should come second to the ideology that they apply to pricing (Smith, 1994).
Common Stocks versus Corporate Bonds
Another way a company raises capital is through stocks and bonds. To put it plainly stocks give the investor a portion of ownership of the company they invest in, bonds are similar to a loan made to the company. Stocks have the reputation of being a riskier investment than bonds due a constantly fluctuating market.
According to Research at the Ohio University Department of Economics “Surprisingly, we found that increasing variance in bond yields is accompanied by increased allocation to bond funds. Increasing variance in...

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