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Equity Funding

In equity funding, business owners offer a portion of their business to investors in exchange for a desired amount of funding.

Benefits of equity funding:

Challenges of equity funding:

Debt or Equity?

Securing funding of any type is not just about wanting 'x' amount of money and applying for it. Thoughtful consideration with a systematic approach can help one make the right selection. Debt forces obligations of future payments whether the business is a success or a failure. While equity takes away part ownership, limiting the freedom of a business owner to operate as he or she wants. (Remember, Apple, Inc. [AAPL] founder Steve Jobs was once fired from his own company due to differences with management and investors.)

The Bottom Line

No lender will fund a business unless there are sure signs of success and a perceived guarantee of returns. Startup owners should approach lenders with concrete business plans, clear business models, growth paths, and projected returns. Finally, convertible debt and convertible equity are other possible funding options that can be considered.