Question

What's the difference between Venture Capital Financing and Debt Financing (from a commercial bank)?

Answer 1

Venture capital provides funding to the firms which are in initial stage of their business and have lesser past track record. This option is better for the new or small companies as they can explain their expansion plan one-to-one to their investors and cost of raising the capital are also low in this method.

Debt financing from a commercial bank generally requires some past records of the company to check its financial strength and its capability to repay the loan. The company can avail tax benefits on the interest payments of the loan. It is based on credit score of the company. Small and micro enterprises rely more for their funding that comes from the investors like angel investors or venture capital firms, while some more established small to large enterprises get loans from the bank.