What is equity financing?

Equity financing refers to the process of raising capital by selling shares of the company. This method involves inviting investors to buy a stake in the company, providing them with ownership rights in exchange for their financial contributions. This approach is beneficial for businesses that may not want to incur debt or guarantee repayments, as equity financing does not require repayment in the same manner that loans do. Instead, investors gain the potential for returns through dividends and the appreciation of their shares over time.

This type of financing is crucial for startups and growing businesses because it can provide significant amounts of capital that can help scale operations, develop new products, or enhance market reach. In contrast to debt financing options, where the company has a contractual obligation to repay borrowed funds, equity financing involves sharing the risks and rewards of business performance with investors.