Merits and Demerits of Equity Financing

Merits and Demerits of Equity Financing

Equity financing has been used by businesses as an investment measure for a long time. Equity financing has several good points and bad points. In order to know if it is good for your business, you need to know what these are.

What is Equity financing?

Equity financing refers to gathering funds from one or a number of investors. This method of funding does not require you to pay debts or interest. However, it means foregoing a portion of ownership of your business and sharing your profits with the investors.

Equity financing

The Pros and Cons of Equity Financing

Pros

1- No debt-

There is no debt in this kind of investment. Since there is no debt there is also no need for paying interest. If you make profits, you have to share a portion of it.

2- No Liability

There is no liability even in case your business doesn’t do well or incurs losses. The investors will bear the loss without putting you at risk.

3- No installment

You don’t have to pay the monthly installment as with debt financing. You are liable to pay your investors only when you make profits. You can gain great advice from investment advisers like Yorkville Advisors Global LP about which financing will do your business good.

The cons

1- Forfeiting ownership

Since you are paying with the ownership of your company for the investment, you lose a bit of your ownership against the amount you get. This reduces your profit as well as your decision-making ability.

2- Profit reduction

If you make profits, you have to share it with the investors in proportion to their investment. This will reduce the total profit you make

3- Finding investors

It is hard to find investors who will be willing to invest in your business since new businesses are risky. For this, you can take advise from Yorkville Advisors Global LP since they are experts in their field and will know how to assist you.

It is best, however, that if you can afford it, use your own money for your business.