What is "equity financing"?

Equity financing refers to the process of raising capital for a business by selling shares of stock to investors. By offering shares, a company allows investors to become partial owners of the business in exchange for their investment, which provides the company with funds for expansion, operations, or other financial needs without incurring debt. This form of financing is attractive to many companies because it does not require repayment like loans do, and it can enhance the company's capital structure by bringing in new investors who may also provide valuable business insight.

This distinction is crucial because it emphasizes that equity financing involves ownership stake, whereas other forms, like issuing bonds or taking loans, involve debt that must be repaid. Individuals contributing personal funds represent another form of capital raising but doesn't encompass the broader practice of equity financing that involves the sale of stock on a larger scale.