I understand the difference between the two. But I’m confused as to when would either be necessary especially in the context of pessimistic and optimistic sales forecast. Thank you in advance!
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It is not the company which decides what kind of financing they are going to get. The company have to follow the budget that is approved by the owners. And equity financing needs direct approval from the owners. With equity financing the owners will dilute their own ownership of the company. So the owners tend to prefer that the company does debt financing. However for debt financing you need a lot more security. You might get investors to part way with their cash using optimistic sales forecasts, they gamble, a bank need more reliable numbers, even the pessimistic sales forecasts may yield high interest rates and you need actual signed contracts to get the rates you can pay.
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