Comparison between Debt and Equity Crowdfunding in Australia
Benefits to entrepreneur who use debt capital to finance their company’s growth are while borrowing money from the bank or some other lenders, the entrepreneur becomes obliged to make the payment on agreed time. With the help of debt financing entrepreneur is able to reduce the burden of tax which can be deducted from our business income tax. If the debt is provided at lesser interest rate then also it is beneficial to the entrepreneur. It is a very useful strategy for those companies who have good credit and also possess a strong history of earning higher revenues and cash flow.
Before planning for debt financing the entrepreneur should consider the amount of ownership given to the general public and the amount of control which is ready to give up not only in the present time but also for financing in future.
An entrepreneur should also decide the optimal ratio of debt to equity. It should also be determined by the entrepreneur the type of financing which is available with the company from its stage of development and capital needs by comparing the requirements of various types at different levels. The level of profit must be analysed i.e. is it profitable to raise capital through equity crowdfunding Australia or in any other country.
When an entrepreneur takes loan then a regular payments has to be made to the lenders. The payment made to the entrepreneur also includes interest in it. If any company is not able to make payment then the assets of the company is at risk and they can be forced to bankruptcy. If a company has raised a huge amount of debt then they are restricted to take any further loans and can also prevent a company from getting cash. There is also disadvantage of losing the ownership of the business and there is also a risk of losing control of the company. Since the equity shareholders gets the ownership of the company and also a right of voting on certain matters of the company which is a major drawback.
Crowd funding is a method used by the entrepreneurs to raise funds from the public by issuing of shares to the public. A relatively small amount of money is contributed by the shareholders in order to finance a new venture or a project. Different countries have different methods of acquiring capital from the public like equity crowdfunding Australia, USA, UK etc.