[Economy] Ways to Raise Capital
Raising Capital is one of the most important and crucial task to start or keep running a company.How do companies raise
capital,to start their operations.
Due to stringent regulations, risks involved in capital investments and difficulty in getting loans it becomes hard to go
ahead with it.
But there are few strategies to raise funds-
Direct Public Offerings (DPOs)
Special strategies for cooperatives Fan-based funding (donations, pre-sales, memberships, etc.)
Grants and public-private partnerships
All these can be broadly divided into two categories
1.Equity– Participation based on Profits,And Profit are paid through dividends
2.Debt-Participation based on fixed return on Investments
Methods of Equity financing are shares & stock options.While, Debt financing can be done by Bonds, Debentures, Debt,Hedge funds.
There are few Hybrid Instruments also which can be bought as Equity and can be converted to Debt later like Preferential shares,Convertible shares etc.
Basic differences in both
1.Shareholder gets ownership in company in case of Equity,such ownership is missing in case of Debt
2.Generally Debt has fixed return,while Equity have floating returns.
3.Lesser risks in debt,more security vis a vis Equity
4.In case of insolvency Priority of Payment is high in Debt financing, while Equity will be paid later taht to on leftover
Both are listed in same ways through Prospectus by company.