The most fundamental element to remember about a debt is that if a company raises money using debt it will have to pay a yearly or biannual interest expense to the lender. If a company is in its early stage, then every dollar is precious to the company and paying money through interest expense is not a wise idea, since that money could be reinvested into the product of the company so that it can quickly be competitioned.
Nov 01 2013 12:42 PM
In situations like that raising money using debt is not advisable and hence raising money using equity is advisable. In cases of later stage companies there are in the growth phase which have predictable history and have clarity on what future strategy they want to implement. Companies such as this can raise money using debt because the company is significantly cash flow positive and the incremental interest expense will not affect the company so much.
Plus since the company is already a large company there is no need for the current promoters, founders or the investors to dilute in the stake of the company. Hence for larger more mature predictable companies raising money using debt is a right thing to do.