Debt financing means a company borrowing money from outsiders to return it later with a certain interest. Businesses acquire working capital or acquisition money from dept financing without losing ownership of the business. Firms do their best to maintain the terms of the debt to hold their creditworthiness. Equity financing is the financing method where a business acquires capital through selling shares. Companies raise funds by selling shares to cater for long-term and short-term expenses.
Debt financing is advantageous in that the business remains in full control of its operations. It is also easy to plan with debt financing. This is because the business knows the amount it is supposed to submit back within the given period. The amount of tax imposed on loans is deductible, thus a business may pay less of what was expected. However, debts can be risks for the business. If the company cannot pay back its debts, it might be dissolved due to bankruptcy. Some debtors also ask for qualifications that a business may not meet, and they do not get the finances. Debts require fixed payments, which must be made without failure.
I would recommend that the hospital gets the finance to acquire the machine through equity financing. This is because there will be no fixed payment to make at the end of the month or year. Credit problems will be handled instantly and without interest, unlike debt finance. Equity financing does not take money outside the business, thus promoting financial growth. Investors of ventures take time to claim their rewards. This gives the business enough time to plan on how to reward them. Though the hospital will have to share profits with the equity investors, the cash will still be within the hospital finances. The loss of control due to shareholder’s interference can be used positively. The hospital can use it to improve its performance by using investors’ complaints as motivations and performance mirror. Therefore, equity finance is better than debt finance.