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Debt Finance and Equity Finance - The Two Pillars of Modern Finance

29 April, 2015 - 15:03

Financing activity for most ventures are either debt financing or equity financing.

Once an investor has decided to engage in financing any business venture or project, he has three concerns to address: risk, protective claim, and return.

These three concerns are essentially hierarchical. The latter two depend on and counterbalance with the first. Higher risk is only attractive when associated with higher returns. The protective claim then acts like a fulcrum to fine tune the balance between risk and return.