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Advantages and Disadvantages of Equity FinancingThere are several major decisions that must be made when you are starting a small business. One of the first ones is likely to be how to raise money, in order to finance your business operations. Keep in mind that you need to spend some time developing a business plan, no matter how you plan to obtain financing for your business.Then with business plan in hand you can then go forward with financing plans, for even a simple small business. One of the major ways that many people choose to finance their start up with is by using equity financing. However, it is important that you understand that advantages and disadvantages of equity financing.
Perhaps you have some cash you want to put into the business yourself, so that will be your initial base. Then maybe you also have family or friends who are interested in your business idea, and they would like to invest in your business. While this may sound good on the surface to you, (and even if this is the best arrangement for you), there are factors you must consider before you jump in. If you decide to accept investments from family and friends, you will be using the form of financing that is called equity financing. The first thing that you must be clear about is whether your family and friends want to invest in your business, or loan you some money for your business. That is a crucial distinction and clearly two different things!If they want to invest, then they are offering you equity financing. If they want to loan you money for your business, then that is quite different and is actually falls under debt financing. There are several advantages to using equity financing-
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