1.Cost: Debt is cheaper than equity

2.Financial Risk: Raising debt will increase the financial risk. Remember, interest MUST be paid.

3.Business risk: If business risk is high and/or operational gearing is high then high levels of debt should be avoided.

4.Tax implication: If business acquires a fixed asset by debt finance, it would be able to claim capital allowance, if company use lease, the lease payment would be allowable against tax.

5.Cash flows: If the company is not going to be a good cash generator for a while then it is likely that equity will be more suitable.

6.Security: If a company has good security available then it may be able to raise more debt.

7.Control: Issuing equity may change control whilst issuing debt will not impact upon control.
 

8.Track record: If the business/entrepreneur has a good track record then raising debt and equity will be easier. A business/entrepreneur with no track record will find it hard to raise finance and will probably need to find a provider of equity willing to take the high risk.

9.Amount: Raising small amounts by external equity is not normally cost effective.

10.Issue: Debt is normally cheaper, easier, and quicker to rise, and has more certainty.

11.Covenants: Debt may often have covenants attached. Are they acceptable?

12.Management: What is their attitude to risk?

13.WACC: Where the amount to be raised relative to the existing finance in the company is large then the impact on gearing and WACC must be considered. Various capital structure theory can be explained these, such as MM theory, traditional theory and pecking order.