Equity vs. Debt Financing

Equity financing involves raising capital by selling shares of ownership in a company, giving investors a stake in the business. In contrast, debt financing involves borrowing money that must be repaid with interest over time.

Key Differences:

• Equity financing involves giving up ownership in exchange for capital, while debt financing involves taking on a loan that must be repaid.
• Equity investors share in the profits and losses of the business, while debt holders receive fixed interest payments.
• Equity financing does not require repayment, but dilutes ownership, while debt financing requires repayment and can lead to financial strain if not managed properly.

Both equity and debt financing have their advantages and disadvantages, and the choice between the two depends on the financial goals and risk tolerance of the company.