There are a variety of reasons why businesses seek funding. Whether to start a business, as working capital, fund capital expenditure, project financing and equity financing, debt restructuring, or even for growth and expansion, funding is an integral part of any business.
So, what are the options available for these businesses to raise the required funding?
The Capital Markets
Businesses can either obtain financing from banks or raise the required funding via the capital markets.
How does the capital markets differ from conventional loans?
With loans, businesses borrow money from a bank, while in the capital markets, funding is raised from investors via debt instruments such as bonds, Sukuk, etc.
Raising Funds in The Capital Markets
In the capital markets, businesses can raise funding through debt financing or equity financing.
Debt financing such as bonds and Sukuk are interest-bearing IOUs over a specific period of time, which can go beyond 10 years, unlike conventional loans.
Bonds are typically long-term debt securities offered by issuers such as companies or governments to investors, also known as bondholders. Bonds are referred to as fixed-income instruments because they traditionally pay a fixed interest rate or “coupons” to bondholders. Bonds have a maturity date at which point the principal amount must be paid in full or the issuer risks default.
Sukuk are the Islamic finance equivalent of bonds. However, instead of interest income, with Sukuk, investors have an ownership in the underlying asset or enterprise, and also have a feature where they are risk-sharing as well as profit sharing. This is what makes Sukuk Syariah compliant.
On the other hand, equity financing involves selling a portion of equity in the company with no obligation to repay the money acquired through it. One example would be the Initial Public Offering (IPO), or also known as “going public” where companies can offer their shares to investors in a stock exchange.
Did you know?
Danajamin was established to help financially viable Malaysian companies access funding opportunities for them to contribute towards sustainable economic growth.
If you’re interested to know more about Danajamin, visit https://www.danajamin.com/business