What does equity financing involve?

Equity financing involves raising capital by selling shares of ownership in a business. When a company opts for equity financing, it is essentially offering investors a stake in the company in exchange for their investment. This can take the form of issuing common or preferred stock and is a way for companies to fund growth without incurring debt.

Investors who buy shares through equity financing become part owners of the company and may receive dividends based on the company’s profitability. Importantly, since this method does not involve taking on debt, it does not require regular repayments or interest, which can be advantageous for the company's cash flow.

This approach can be particularly appealing for startups and growing businesses that need capital to expand but may not yet have the ability to secure loans or want to avoid the obligations that come with borrowing.