Question

Explain the pros and cons of public deposits as a source of business finance.

Answer 1

The pros of public deposits are as follows:

1. Obtaining deposits is simple and free of the restrictive requirements typically found in lending agreements.
2. The cost of public deposits is generally lower than the cost of borrowing from banks and financial institutions.
3. Public deposits normally do not generate a levy on the company's assets. The assets can serve as collateral for obtaining loans from other sources.
4. Depositors do not have voting rights; hence, the company's control is not diluted.

The cons of public deposits are as follows:

1. New enterprises usually struggle to raise cash through public deposits.
2. The public may not respond to a company's financial requirements, making it an unreliable source of funding.
3. Collecting public deposits can be problematic, especially for big amounts.