With an array of methods at their disposal, companies are tasked with assessing and selecting the right option for their situation. The most common methods companies undertake to raise capital are taking on secured debt, or in some case unsecured debt, and through equity. Worldwide Financing Group, with experience in professional financial planning, assists clients in analyzing both company structure and business strategy to help clients make the right decision when seeking to raise capital.
Essentially, raising capital through equity entails the sale of shares in the company in return for finance. Through this option, the financer acquires a share in the firm, which can be in the form of preferred stock or common shares, for example. This option would oblige the company’s owners to provide a portion of future earnings to the financer.
Raising capital through secured debt involves obtaining finance through loans secured against collateral to reduce the risk to the lender. Should the company be unable to repay the debt to the lender, typically a banking institution, the bank would seize the assets the debt was secured against, such as property. This option involves lower risk than unsecured debt for the lender and is thus more easily acquired.
Entailing more risk to the lender, raising capital through unsecured debt involves obtaining a loan without it being secured against collateral or assets. However, as this debt is not secured against collateral, increasing the risk to the lender, interest rates tend to be higher than secured debt. Should a company be unable to pay off the debt to the lender, in the event of business failure, declaring bankruptcy is a way to clear the debt. However, this will make it considerably more difficult to secure future loans and credit ratings also suffer.
At Worldwide Financing Group, we help guide clients through the different options and evaluate each method for raising capital to ensure security and comfort going forward.