My company Academic Assistance Inc. (AAI) provides academic services to high school and college students. The students can request assistance in any subject and all the tutors employed by the company have at least four-year undergraduate degree from accredited colleges and universities as well as over 3.0 GPA. The company does the background verification so that students don’t have to and students can also rate their respective tutors on the company’s website. The most efficient way for AAI to raise capital may be equity financing. Profitability may be important for new businesses but even more important is liquidity, especially in early years. Unlike debt, equity funding doesn’t have to be paid back (Harley) which helps the company towards profitability and particularly liquidity.
There are several advantages of equity financing as opposed to debt financing. First of all, equity financing often enables the business to benefit from equity investors who have had years of experience in helping new businesses succeed and avoid most common mistakes. This is important benefit because most businesses fail in early years. It is also important to avoid mistakes because new businesses usually have limited resources, thus, they cannot afford expensive missteps. Another benefit of equity financing over debt financing is that it increases the prospects of business survival and growth due to greater liquidity (Kokemuller). This is important because debt principal and interest has to be paid whether businesses is doing well or not and this can seriously jeopardize business survival under difficult economic climate or if the business may be struggling in early years.
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- Harley, Ked. The Difference Between Debt and Equity Financing for Your Small Business. 25 June 2013. 9 February 2014
- Kokemuller, Neil. The Advantages and Disadvantages of Debt and Equity Financing. 9 February 2014
