Equity financing
Equity financing raises money by selling ownership shares in the business instead of borrowing funds that must be repaid.
With equity financing, a company sells a portion of itself to investors in exchange for capital. Those investors become part owners and share in future gains, whether through dividends, a sale of the company, or a public offering. Because the money is not a loan, there are no required monthly payments and no interest. The cost shows up instead as a permanent claim on a slice of the company's value and, often, a say in how it is run.
This option fits businesses that need substantial capital, cannot or do not want to take on debt, and are comfortable sharing ownership and upside. The clearest trade off is dilution. Every share sold reduces the founders' percentage of the company and can reduce their control. Equity also tends to be the most expensive money over the long run if the company succeeds, since investors keep earning as the business grows. Debt can be cheaper for a profitable company, which is why many founders weigh equity against a term loan before deciding.
Common questions
How is equity financing different from debt financing?
Equity financing sells ownership and requires no repayment, while debt financing is borrowed money that you repay with interest but that does not dilute your ownership.
Is equity financing more expensive than a loan?
It often is over the long run for a successful company, because investors keep a permanent share of the value, whereas a loan ends once it is repaid.
Comparing your options? Start with a quick form. It won't affect your credit score.
See your funding options