How do firms raise capital? What criteria do they use in choosing between different alternative methods?

Question

Question

business economics

Answer 1

Answer #1

Ans) There are multiple ways in which company can raise capital like÷

Firm can apply for loan
If its a startup, firm can look for angel investors.
Firms can look for venture capitalists as well.
Crowd funding is another method by which firm can raise capital as it connects like minded people.
Certain government programs can also help in raising capital.
Business incubators and accelerators can help in providing tools, training and network to raise capital. Dropbox and Airbnb started with accelerator.

HOW TO CHOOSE BEST ALTERNATIVE

Consider the repayment terms, interest rate and fee structure. See at what rate bank is providing loan, add all the costs associated with the financing method which you are choosing, consider the time by which investor wants to be paid back etc.
Look what investors are demanding, are they demanding for ownership stake which you may buy later but are you ready for it?
Before selling stocks in share market to raise capital, see the associated risk of losing managerial control in future due to takeover.

After weighing all pros and cons of capital raising method, decide which is best alternative for you and your business.

Answer 2

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