Final answer:
For a small firm looking to expand, issuing stock may provide greater financial flexibility compared to borrowing, as it doesn't require immediate repayments. Venture capitalists also offer both capital and strategic oversight but require some control in return.
Step-by-step explanation:
When considering whether to raise funds through borrowing or by issuing stock, a small firm owner must evaluate their company's current financial situation and future growth plans. Borrowing through bonds or loans brings an obligation to make regular interest payments, potentially straining cash flow especially if the company is not yet generating substantial profits.
On the other hand, issuing stock provides capital without the requirement for immediate repayments, granting the firm more financial flexibility during its expansion phase. Additionally, with venture capitalists, who are often well-informed, private investors, a company may gain not just capital but valuable expertise and oversight, although at the cost of ceding some ownership control.