Why will raising money through debt be riskier to a company than issuing stock?

Question

But why is debt riskier than issuing stock?

Answer 1

Stock was invented to share risk. It divides up and sells ownership of a company, so if the company fares poorly, all stockholders will lose a little money, but one person will not lose it all.
Example 1: You have a million dollar company and want to expand, so you borrow $500,000. Not only does the expansion fail, but your business is worth less than before, say, $500,000. Now, you owe half-a-million, the entire price of your business, so you have to sell it all to pay back your debt and you now have nothing.

Example 2: You sell 50% of your company stock and have half-a-million in cash. You blow that half. And your business is now only worth $500,000 and you only own half. But you still are worth $250,000 in stock, because you spread half of the risk to your stockholders.

Of course, you will also not make as much if your business becomes super-sucessful. You spread risk, but you also spread gains.

Answer 2

Yes, you have to pay back debt and you can buy back share if and when you wan to.

From the risk perspective debt is higher and stock is close to no risk.