What is Investment Banking?
Investment banking keenly focuses on the provision of finance for the development of enterprises and corporations—fulfilling their financial needs and raising their capital. In this blog, we will look into the different ways a company can raise capital with the help of an investment bank.
Ways for Companies to Raise Capital
Companies can raise capital with the help of investment banking firms. Basically, there are two ways that banking firms can help them: equity and debt.
Debt Financing
Debt financing usually happens when a company borrows a certain amount of money from a lender and agrees to pay it back at a later date. The most common types of debt that a company can use to raise its capital are loans and bonds. Companies often use these kinds of debt for project expansions or even for new project plans.
Companies that wish to raise their capital via debt will have to approach a bank or a financial company that will act as the loan lender. Once the company and the lender agree on a certain amount, the bank charges interest that is payable in a certain span of time.
Debt financing has its own drawbacks. It can help a company raise capital, but it is also risky in terms of payable interest, which might be a threat to the company’s operations.
Equity Financing
A company can also raise its capital by selling shares through listing them in the market, especially when it is a medium-sized company that does not have sufficient capital to expand in the event that it plans to launch new products, open new branches, or expand its geographic footprint, amongst others.
It is more or less like giving up a percentage of their shares to an investor, whether it is to the public or a private financial institution. This is frequently done in the stock market. An Initial Public Offering (IPO) is known to be one of the best strategies to utilize when it comes to capital raising.
Both types of financing can fulfill the needs of a company, but their impact will always depend on the current situation of the business and its financial state.
End note
Investment banks act as financial advisors that help companies, the government, and other prospects raise capital and overcome financial challenges through different banking activities. If you are still hesitant about how it works, reach out to our Investment Banking team.
