Forms of Financing Debt and Equity

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There are two general forms of financing debt and equity. There are advantages and disadvantages to each, so determining how the company will be financed needs to take that information into account. Debt creates an obligation it must be paid back through the company's cash flows. This in turn increases the riskiness of the company to the owners and it also reduces the opportunities that the company might have for expansion. Also, debt is hard to acquire for a new business. Banks are unlikely to lend to an unproven business, and they certainly will not lend a substantial amount to such a business. Credit cards can be maxed out to start the business, but the high cost of cards makes this a very high risk option. Equity is easier to acquire even if just from friends and family. Equity does not create the same cash flow obligations, leaving the company less risky and better prepared to expand. However, equity equates to control of the company. The owner will want to maintain enough equity to retain control of the company. It is recommended, however, that as much equity as possible is used. The business will perform better if has little debt, and it will be able to expand more quickly. Given the rapid pace of growth in the food truck industry, the ability to expand rapidly might be valuable for this new venture. The financials of the new venture must be estimated before equity can be sought. There are two types of costs upfront costs and operating costs. The upfront costs of
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