Equity financing: Selling stock for capital.
Equity financing is the act of selling common stock or preferred stock to investors. This is usually done through an underwriter called an investment banker. The company will give up ownership equity in their business and the underwriter will be responsible for promoting and selling them to the public.
Another method of equity financing is selling the stock directly to investors without using and underwriter. This is known as a direct public offering and is done to avoid the cost of an underwriter and to avoid having to file the securities with the SEC.
Generating financing in this way can be good for a business, but it also is not as easy and simple as it looks. There are many more solid and more proven methods for obtaining financing including regular business loans, merchant account advances, account receivable factoring, government loans, and even through third-party private investors.
Lenders and investors want to make sure that a business has a good plan in place which details important factors of their business including how they will make money, the market conditions, exactly how much money is needed, and when and how the loaned money will be paid back.
The more specific a business can be in their plan, the better chance they have of being approved for financing. Lenders and investors are taking a risk, so it is important to a business that the lenders feel safe.
You can browse our free business capital search engine to find additional sources of financing for your business.