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Chicago Fed Letter, No. 113, January 1997
Issues in Funding the Activities of Small Firms through SBICs

One of the most fundamental questions in finance is how to fund firms’ investment projects. Some firms finance investment projects by using equity, while others borrow from investors and/or financial intermediaries. Because debt and equity contracts offer different payoffs and rights to investors, how a firm finances its projects is primarily determined by the characteristics of the firm and its projects.

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