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Equity holders want 16 percent on their investment whereas debt holders only require 8 percent . I would be crazy to expand using equity since debt is so much cheaper?
Wiki User
∙ 13y ago
Depends very much on your business and the terms within each of the offerings. If your debt deal is simply preferred stock then its a great deal, however if its something more like a Senior Debt (Bond or Note) then it might have more costs on the back side of the deal.
Debt typically will have a term of repayment, fixed or adjustable rate of return or coupon, held senior to all other debts and equity, must be repaid at some future date, and very often require at least one of the principle owners to personally guarantee the debt - meaning if the business defaults for any reason they can come after both the business and the guarantor.
Equity on the other hand does not come with any of those strings, outside of a convertible equity that allows an investor to move into a debt if they fear the investment is going down hill.
Wiki User
∙ 13y ago
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