Equity Financing

Definition - What does Equity Financing mean?

Equity financing is a method of financing a business in which shares of ownership of the business are exchanged for capital or money. People who buy shares of the business are known as investors. Once an investor buys shares of the business, they are legally entitled to these shares. If the value of the business's shares go up, then the investor makes money. If the value of the shares goes down, then the investor loses money.

Justipedia explains Equity Financing

Shares of businesses are often offered as stocks. Stocks are commonly offered on stock exchanges and are open to the public for investment. However, equity financing can be done privately too. For example, a small business may offer 30% of a business to an investor in exchange for $100,000. The reason why many businesses use equity financing is because it helps them generate cash that they might not ordinarily have access to. This cash can be used to grow the business.

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