Equity financing requires businesses to sell preferred stock to an individual or a group of investors. In return, the stockholders provide money to the business and then receive ownership in the corporation.
An advantage to equity financing for business acquisition financing is that the borrower does not have to make repayments like with traditional loans, as long as the business is making profit, the profit is essentially paying investors, who holds stock in the company.
Equity financing can also help small businesses gain recognition, if they have big or well-known investors who take stock in the company. The downfall to allowing outside ownership in the company is the lost of complete control. The business owner now shares decision making with all the stakeholders.
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