The Cost of Equity is generally higher than the Cost of Debt since equity investors take on more risk when purchasing a company's stock as opposed to a company's bond.
The fundamental drawback of equity financing is that it necessitates a reduction in ownership and control on the part of business owners. The company must also provide a specific portion of its future revenues in the form of dividends to its shareholders if it is to remain profitable and successful.
The danger of bankruptcy might rise when interest rates are high during a tough financial moment. Because of the high cost of debt payment, businesses that are excessively highly leveraged—that is, with significant debt loads relative to equity—often struggle to expand.
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