Equity Financing

Article Via Chicago Tribune by Stephen D. Froikin

Equity means ownership. Equity financing means that you give an ownership share of your business to your investor. Your new "partner" expects to share in the profits of your business. Equity financing differs from debt financing in two ways:

1. Lenders expect to get their money back plus interest. The amount of your obligation is fixed. There is a repayment schedule and that's it. Once a lender is paid off the relationship is over.

2. Equity investors don't expect to get their money back in the same way as lenders. They expect to get a stream of income out of the profits of the company. There is no payment schedule and the stream of income can vary over time. This is a riskier situation for the investor, so the hope is for an even higher return than a lender would get. Of course, investors are interested in more than the stream of income. They'd like to be able to sell their share in the business if they ever need to. That's the return of capital, similar to a lender's getting back the principal amount of a loan, but the amount is not fixed. Instead, it depends on what a buyer would pay for the ownership share.

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For more information on Equity Financing, please contact Pacific Security Capital at www.pacificsecuritycapital.com or call 1-800-844-6085