11/06/2016
COMPARATIVE ANALYSIS BETWEEN BANK FINANCE AND CAPITAL MARKET FINANCE
Banks Finance Vs Capital Market Finance
1. Sponsors’ Equity requirement higher (more than 50%) Can raise fund more than sponsor’s / company’s own investment- i.e. sponsors and public ratio (30%:70%)
2. Directors from General Public portion is not applicable Sponsors and Public 5:1 Ratio as per Board Resolution
3. Minimum Collateral security @ 1:1 required to be mortgaged in favor of the Bank/NBFI on the other hand No such requirements
4. Interest rates 15% to 20% on the other hand No such interest on capital
5. After paying interest expenses @15% to 20% then owner enjoy the benefit on the other hand Dividend will pay after meet up all kinds’ regular and irregular expenses.
6. Loan is fixed and compulsory, if default penalized heavily, question of refund compulsory on the other hand Capital invested permanently (as shareholders). No question of refund
7. Payment of fixed interest here on the other hand Dividend (from profit after meeting expenses) is paid to shareholders.
8. Company gains little, because long term loan obligation is there on the other hand Stock Value increases with times (if properly managed)
9. Risk of losing capital/business you may defaulter on the other hand If you loss capital/business (liabilities is limited with shares) no question of defaulter)
10. If additional fund is required than additional asset is required for mortgage on the other hand If additional fund is required you can issue Rights Shares to existing shareholders (ratio upto 5 times)
11. You have no market value of your own investments and no market here on the other hand You can calculate your investment in the form of market value
12. There is no market here on the other hand You can sell your bonus shares/portion of holdings shares to the capital market for meet up your emergency requirement
13. Bank cost much higher (Interest + time etc.) on the other hand Cost of raising capital (one time only) @ 2% to 5% maximum) one time
14. Uncertainty on the other hand Minimum processing time (3/6 months)
15. Tax burden higher on the other hand Listed Companies get Tax benefits as well as sponsors/shareholders also (lower rate of tax then private companies.
16. You do not required to change your corporate statuson the other hand You can changed your status in the form of corporate status
17. Your shares are not get status for selling in the capital market/if you require urgent personal fund cannot sell out for meet up on the other hand Your shares shall get a status for selling in the capital market and you can meet up your urgent requirement by selling your holding.
18. Here is no share/capital market so auto publication/marketing of your company and products is not here.on the other hand Here is a share/capital market so there is a auto publication of your company, products, sponsors here
19. There is no scope of fold up sponsors investment on the other hand If after declare dividend more than 15% to 20% then your investment/capital fold up minimum 4/10 times.
20. There is no scope of auto promotional activities on the other hand Promotional activities will occur internationally and automatically