Advantages and disadvantages of equity financing

The advantages of equity financing are obvious. First of all, the use cycle of funds is long. Secondly, equity financing does not have the financial pressure of regular repayment, and the financial risk is relatively small. At the same time, equity financing can also improve the credibility and strength of enterprises.

However, the shortcomings of equity financing are also obvious. First, enterprises will face the risk of decentralization and out of control, and second, the cost of capital is high.

From the characteristics, the funds obtained by equity financing are permanent, with no term and no return. For investors, to recover funds can only be achieved by means of circulation market.

Creditor's rights financing refers to the financing of enterprises through borrowing. For the funds obtained by debt financing, the enterprise must first bear the interest of the funds, and in addition, it must repay the principal of the funds to the creditors after the loan expires. The characteristics of debt financing determine that its purpose is mainly to solve the problem of working capital shortage of enterprises, rather than spending under capital.

classify

According to the broad categories, there are two financing methods for enterprises, namely debt financing and equity financing. Creditor's rights financing refers to the enterprise's financing through borrowing, and the enterprise needs to pay interest on the funds obtained from creditor's rights financing, and repay the principal to the creditor after the loan expires. Equity financing refers to the financing method that enterprises introduce new shareholders by transferring part of equity and increasing capital. With the funds obtained from equity financing, the enterprise does not need to repay the principal and interest, but the new shareholders will share the profits and growth of the enterprise as the old shareholders do.

trait

1. Debt financing only obtains the right to use funds, not ownership. The use of debt funds has a cost, and the enterprise must pay interest, and the principal must be returned when the debt expires.

2. Debt financing can improve the return on capital of enterprise ownership funds and has financial leverage.

3. Compared with equity financing, debt financing may bring creditors' control and intervention to the enterprise under certain circumstances, but generally it will not cause control problems to the enterprise. [ 1]

explain

Debt financing is often confused with debt financing. Debt financing refers to the financing of enterprises by selling creditor's rights, such as selling creditor's rights such as accounts receivable. Due to historical reasons, China's creditor's rights financing does not distinguish between lending and debt, which leads many people, including school scholars, to always call lending a loan and debt a creditor's right. So the debt financing here, in addition to the above, is actually debt financing. The result of debt financing is to increase the liabilities of enterprises. According to different channels, it is mainly divided into bank credit, folk credit, bond financing, trust financing, project financing, commercial credit and its lease.

Main form

bank credit

Bank credit is the main form of debt financing, but for small and medium-sized private enterprises, which account for the vast majority of private enterprises, it is unthinkable for many enterprises to obtain bank loans. According to the statistics of Shenzhen Information Statistics Department, there are nearly 65,438+10,000 small and medium-sized enterprises in Shenzhen, at least half of which have never borrowed a penny from banks. About13 enterprises have loans with a total amount of less than 2 million yuan; Only a few enterprises can borrow enough money from banks.

The main factor that makes it difficult for private enterprises to obtain bank loans is the current bank credit policy from the macro-policy point of view. So far, China's state-owned commercial banks' loans to enterprises are largely classified according to the nature of ownership. It is easier for small and medium-sized state-owned enterprises to obtain bank loans, but it is much more difficult for township enterprises and collective enterprises to obtain loans. Some private enterprises can't get loans from state-owned banks at all, even though they have strong credit capacity and good benefits.

The main reason is the value judgment of "public" surname and "private" surname. The data shows that the contribution of state-owned economy to the national industrial added value accounts for 3 1%, and the contribution of non-state-owned economy reaches 68%. The loans obtained by non-public enterprises from banks only account for more than ten percentage points of the total. On the one hand, it shows that the utilization rate of non-public economic loans is extremely high, on the other hand, it can be seen that non-public economic funds are relatively scarce. From the micro level, the reputation of private small and medium-sized enterprises is also an important reason why banks dare not lend. Many private enterprises have many "congenital" shortcomings: defects in property rights system and enterprise system,

Many "sequelae" need to be cured; Insufficient capital accumulation and weak development potential; Investors lack entrepreneurial experience, are blind and have low success rate; Business objectives are short-term, and some even gain short-term benefits by practicing fraud and destroying the environment; Lack of management foundation, some enterprises go into recession after rapid expansion in a short period of time. On the one hand, these conditions increase the transaction cost of banks, on the other hand, they also increase the credit risk of banks, and naturally they cannot obtain loans.