Equity vs. Debt Financing

An experienced senior business executive in Franklin Lakes, New Jersey, Evgueni (Eugene) Maftsir has served as president of the international brokerage and investment firm BEV Associates since 2002. Eugene Maftsir’s (Евгений Мафцир
)  areas of expertise include a full spectrum of financing options.

There are two general types of financing available to businesses: debt financing and

equity financing. Debt financing involves lending funds that companies must pay back with interest. Equity financing involves purchasing ownership in a company in exchange for cash. Both of types of financing have their advantages and disadvantages.

Debt financing can be difficult to obtain in lean economic times. It also involves monthly payments that must be paid regardless of overall business performance. However, all interest paid is tax deductible as a business expense, and lenders typically have no control over company operations.

In equity agreements, no lending of funds takes place. Financiers or venture capitalists gain a financial stake in the company and, therefore, generally provide input when it comes to company polices and processes. This can be particularly valuable for startups and early stage operations, as the guidance provided often leads to improved operations and a greater chance of success.