What is equity financing?

Equity financing involves raising capital by selling shares of the company to investors. This method allows a business to obtain funds without incurring debt, as investors provide capital in exchange for ownership stakes in the company. Unlike debt financing, where repayments are required regardless of a company's performance, equity financing aligns the interests of investors with the long-term success of the business. When the business grows and increases in value, shareholders benefit through appreciation in their shares and potential dividends.

This form of financing is particularly beneficial for new and growing companies that may not yet have the cash flow to support debt repayments. By offering equity, these businesses can access necessary resources to expand, innovate, or cover operational costs while also sharing the risks and rewards with their investors.