FIN Mod 5 CA - Equity Financing (AMSC)

Equity Financing (AMSC) The American Superconductor also referred to as AMSC is an energy Company which is located at Devens in Massachusetts and it specializes in designing and manufacturing of the power systems and the superconducting wires. The Company also owns Windtech located at Klagenfurt in Austria. The decision to choose either debt financing or equity financing will always depend on one’s situation, the financial capital, the potential investors, the credit standing, the business plan, the tax situation, the type of business one plans to start will always have an impact on the decision. It is always important that one makes this decision wisely. To be able to know why American Superconductor (AMSC) preferred Equity Financing other than Debt Financing, we have to look at the merits and demerits of each financing option as below (American Superconductor, 2010). Equity Financing It is a form of getting your business financed without incurring any debts. With this form of financing, one does not have to take out a loan since the funding will readily come from an investor in exchange of a piece of ownership of the business. It is commonly used by many small and growing businesses as a source of funding. One can be able to borrow from non-professional investors such as the family and friends but mostly, the common source are the professional investors (Valdez, 2005). Advantages One is able to use his/her cash and that of the investors to start his business for the start-up costs instead of incurring large loan repayments to financial institutions and other organizations or other individuals. One is able to get underway without the burden of debt on ones back. If one has prepared a prospectus for his investors and explained to them that their cash is risky in the new start-up business, the investors will understand that if the business doesn’t do well, then they won’t be able to get back their cash. Depending on the kind of one’s investors, they can be able to offer valuable business help that the entrepreneur may not have. This assistance is very important in the early days of a new firm. That is why it is very important for one to choose the investors widely (Valdez, 2005). Disadvantages Since investors will own a piece of one’s business, how large the piece is however depends on the money an investor has invested in the business. One may not probably want to give the investors the full control of his business and that’s why one should be very careful when taking on the investors. Investors will want a share of the profits the business has made unlike in debt financing whereby the banks or individuals one has borrowed the money from will only expect their loans repaid. If one’s business doesn’t make a profit during the first years of one’s business, the investors will not expect to be paid. Since the investors have shares in one’s business, the owner of the business is expected to act in their best interest as well as his and this may mostly open up lawsuits. In some situations, if one makes his firm securities available to a few investors, one is not required to get involved in a lot of paperwork but incase the business opens itself up to wide public trading, then the paperwork may overwhelm i...