What type of financing involves selling shares?

Equity financing involves selling shares of a company to raise capital. When a business opts for equity financing, it is essentially offering partial ownership of the company to investors. These investors receive shares or stock in exchange for their investment. This approach allows the company to raise funds without incurring debt, which means there are no monthly repayments or interest charges associated with the capital raised.

Equity financing is particularly advantageous for startups and growing businesses that may not have sufficient credit history or assets to secure traditional loans. In return for their investment, shareholders typically expect a return in the form of dividends or an increase in share value, aligning their interests with the company’s success.

In contrast, other types of financing, such as debt financing, involve borrowing funds that must be repaid with interest, while subordinated and mezzanine financing are forms of debt that often carry higher risk and typically come into play in more complex funding scenarios. The distinction is crucial in finance, as it influences a company's capital structure and financial strategy.