Equity finance is also referred to as share capital and it has its pros and cons.More on the Advantages of Equity Finance
Resources raised through equity finance can be either cash, property or services. As opposed to equity financing, debt financing is the other option available to companies for raising resources. Under equity financing shareholders get ownership rights in the company in lieu of the money paid.
Mostly the advantages of equity finance are reaped by the small business enterprises. Small business enterprises are likely to face some difficulties in their initiation days regarding the flow of resources. Constraints of resources like cash flows plague these small companies. However, they have to find a way out since funds are essential for running a successful business venture. Money raised through equity financing does not entail any repayment obligation at that point. It saves the repayment burden imposed by alternative arrangements like bank loans and debt financing. They impose penalties on business organizations, which default in the stipulated repayments.
The advantages of equity finance lie in the fact that equity finance eases out the various fund supply issues of the small companies without any immediate repayment burden. Equity investors look forward to mainly growth opportunities. Hence in place of an established concept they are on the lookout for a new idea. They are eager to take chance with a new company. Another interesting angle to the list of advantages of equity finance comes from the investors side. The investors themselves often act as counselors for the owners of these small businesses. They also often extend their network of contacts to the owners of the small business enterprises.