Question

Debt, a source of nonequity funding, allows a new business to handle the disparity between when goods must be purchased and when money will be received from a customer to pay for those goods.

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Answer 1

Debt serves as a nonequity funding source, facilitating businesses, including startups, and individuals to spend funds on immediate needs with the intention to repay once financial stability is attained.

Step-by-step explanation:

Debt is a critical source of nonequity funding for new businesses because it allows them to manage the cash flow challenge posed by the need to invest in goods and services before receiving payment from customers.

Financial investment in the form of borrowing is essential for businesses, particularly in their early stages when they may not have a steady income stream or any profits to reinvest.

Early-stage financial capital can come from a variety of sources including banks, bond markets, or early investors.

For individuals such as college students, borrowing is a means to finance current expenditures like tuition and living costs, with the expectation of repaying these loans in the future when they have a steady income.

This principle also applies to businesses that seek financial capital to invest in long-term projects like building factories or initiating research and development projects which will not yield immediate financial returns but are anticipated to do so in the long run.