 In this discussion, we will discuss the discussion question of describe the pros and cons of financing using bonds support accounting instruction by clicking the link below giving you a free month membership to all of the content on our Website broken out by category further broken out by course each course then organized in a logical Reasonable fashion making it much more easy to find what you need than can be done on a YouTube page We also include added resources such as excel practice problems PDF files and more like QuickBooks backup files when applicable So once again, click the link below for a free month membership to our website and all the content on it Now when we see a discussion question like this or an essay question like this We really see the pros and cons and you got to kind of imagine Against what what are we pros and cons in against? Obviously in this case we want financing meaning we're trying to generate revenue or not revenue, but money for the company So obviously the main way we would like to get money is through revenues through generating income But if we need to finance the bit the business in some other way, we need cash in some other way Then we have some options one would be bonds we can issue bonds But we can compare and contrast that when we have the pros and cons against the other ways that we finance the company So other way if it's a company we could also issue stock so that's another thing that we can compare and contrast against and or we can take a loan out of The for the company as well. So those are the other ways we can get money for the company So what are the pros and cons then of bonds in comparison to these other things? Now the bonds are going to be most similar to kind of a note because the bonds and we might want to start there What is a bond right the bond is going to be? we're going to receive money from From individuals who are investing in the bond and we're going to pay back an obligation a bond is an obligation to pay Typically we're going to pay back the principal of the bond at the end and some type of fixed interest Throughout the life of the bond. So it's a promise to repay in exchange for cash So financing options now that's going to be very similar to a note Where we're going to have a similar type of agreement the major difference and the major probe from a bond to a note Is that a bond can really be issued to more than just just the bank? We could we can actually go to the public and go on an exchange and possibly issue bonds for a corporation So we may have more ability to to get to more people more Financing options rather than just a bank if we were to issue bonds So that's one benefit of the bond Over a note whereas if we go for a note if we want to get a loan We typically have to go to the bank and deal with the the bank terms in terms of the loan The financing however is going to be very similar and that we are going to have to pay back We're going to get money and we're going to have to promise to pay back in some form or the other The interest and the principal now the other way we can finance of course is with stocks and What's the difference there? What happens with stocks? Well with stocks we would issue the stock and we would get money for the issuance of the stock Which is a great deal because we don't have to pay anything back if we do that and that's great We just get money. We don't have to pay anything back. What's the downside of issuing stock? Well, we're giving away equity interest in the in the company. That means we're giving away Potential rights to dividends. We're giving away potential voting rights in the company They have control or voting rights and decisions within the company and claims to if there's a you know any Value of the company if there's a liquidation they get they have claims to to that So we're giving away some control in the company in that case and that's a big trade-off so a loan a loan or a bond you got to pay back interest and principal which is not good We don't like that as opposed to stocks. We don't have to pay back interest in principle However, with stocks you're giving away some controls of ownership in the company which typically, you know We don't want to do that We want to keep control of the company and still get financing whereas in a bond or a loan We don't have to give away control of the company. So that's going to be the major trade-off between between those two things Now the other thing with a bond is we have to pay interest on it. So we're basically renting money We're getting money from from investors and the only reason they're giving us that money They're loaning us purchasing power, which we then have to pay interest on so that's a disadvantage of a bond We got to pay interest. We got to pay rent on the money So that's a disadvantage one of the pros of that However, there's a silver lining I guess of sorts and that's going to be that the interest that we pay is Usually tax deductible meaning it's going to lower our taxable income because it's an expense and therefore lower our taxes We at least get to deduct the expenses. Now again, that doesn't make it good. We don't like to pay interest We're still going to have to pay back the interest the tax deduction is not going to counter out the fact that we're paying interest But at least if we're paying interest we get to we get to deduct it and lower the amount of taxes based on Because of the interest that we're paying