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appropriate. Similarly, the purposes for which funds are required need to be
considered so that the source is matched with the use

5. Risk profile:

Business should evaluate each of the source of finance in terms of the risk
involved. For example, there is a least risk in equity as the share capital has
to be repaid only at the time of winding up A loan on the other hand, has a
repayment schedule for both the principal and the interest which is to be
paid irrespective of the firm earning a profit or incurring a loss.

6. Control Issue of equity shares may mean dilution of the control.

Thus, business firm should choose a source keeping in mind the extent to
which they are willing to share their control over business.

7. Effect on credit worthiness:

Issue of secured debentures may affect the interest of unsecured creditors of
the company and may adversely affect their willingness to extend further
loans as credit to the company.
8. Flexibility and ease:

Restrictive provisions, detailed investigation and documentation may be the
reason that a business organization may not prefer it, if other options are
readily available

9. Tax benefits:

Non taxable instrument will be preferred over tax deductible. For example,
while the dividend on preference shares is not tax deductible interest paid
on debentures and loan is tax deductible and may, therefore, be preferred
by organizations seeking tax advantages.

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