What does equity financing involve?

Equity financing involves receiving investments in exchange for equity in a company, meaning that investors gain ownership stakes in the business. This form of financing allows companies to raise capital without incurring debt, as funds are raised from investors who expect to share in the profits and growth of the company rather than being repaid interest as with loans. By offering equity, businesses can attract investors who may bring additional value through expertise, mentorship, or networking opportunities. This capital can be crucial for startups and growing businesses that may not have sufficient cash flow or creditworthiness to secure traditional loans.

Other options involve financial support or funding but do not accurately describe equity financing. Loans from banks focus on debt financing rather than ownership exchange. Grants are typically non-repayable funds that do not involve equity stakes, and crowdfunding does not necessarily equate to equity financing, as it may involve contributions with or without ownership shares.