What is equity financing?

Businesses are usually expensive to open and operate and many businesses need investors in order to make the business successful. One way in which business owners can get funds for their business is through equity financing. Equity financing allows people (or other businesses) to invest in the business in exchange for an ownership interest in that company. The investors may be given common stock or preferred stock in the company and, depending on the amount of money they invest, may be given a seat on the board of directors or other decision making body. Since the investors are given an ownership interest in the company, the money which they invest does not need to be repaid by the company. Instead, the investors are entitled to the potential profits of the company in proportion to their ownership interest.