Advantages of Funding through the Capital Market : How to Obtain Financing through the Capital Market?

Source of Financing

When companies seek funding for their businesses through the capital market, they can choose from the following sources of financing:
  • Equity Financing - increasing the share capital by issuing new shares
  • Debt Financing - issuing bonds or commercial papers.


Financing by issuing shares

When a company issues new or additional shares and offers them to the public, it essentially means selling a portion of its ownership. Buyers of this share become new shareholders or new owners of the company.
Rights arising from ownership of shares, can be categorized into:

  • Financial rights (right to dividends, distribution of remaining capital) and
  • Managerial rights (decision-making on the use of retained earnings, appointment of members of the supervisory board, appointment of auditors, etc.).

When issuing shares, there is no debt created that needs to be repaid to investors, as is characteristic of bond issuance.

Financing by issuing bonds

Bond issuance represents one form of borrowing capital from investors, creating a debtor-creditor relationship between the company and the investor. In exchange for the borrowed funds, the company must repay the acquired funds along with interest after a specified period (at maturity). Bonds are an attractive instrument for companies, primarily because their issuance does not impact ownership, and bondholders do not have a say in the management and operation of the company. By listing bonds on the stock exchange, the company gains greater exposure and publicity in the broader investment community. The money borrowed from investors must be repaid upon maturity or in instalments. Funds can be replenished by issuing new bonds to replace the previous issuance. Another option is the conversion of bonds into shares at maturity or even at certain points before maturity, reducing the amount of money to be paid to bondholders at maturity (referred to as convertible bonds).

What changes does the issue of securities bring to the company? 

The issuance of securities and their listing for trading on the exchange brings many advantages connected to the listing of securities on the stock exchange. On the other hand, it also brings some additional (or different) costs and obligations to the company. These depend on the type of market (stock market / SI ENTER market) and the market segment or type of securities (reporting obligations for equity issuers are greater than those for bond issuers).
On our website, you can find information on how to enter on the stock exchange, what are the basic obligations of a company from the decision to issue. On this journey experts and advisors on our markets will be glad to assist you.