VCs often request an equity stake of 35% – 51%, especially when you are just a startup company with no strong fundamentals. This in turn, gives you the freedom to channel more money into your growing business. Potential investors will seek comprehensive background information on you and your business. The business owner must be willing to share some of the company's profit with his equity partners. Disadvantages of Debt Compared to Equity Unlike equity, debt must at some point be repaid. Advantages . Disadvantages of Equity Financing Remember that your investors will actually own a piece of your business; how large that piece depends on how much money they invest.

High interest costs during difficult financial periods can increase the risk of insolvency. Credit issues gone. The business doesn’t have to make a monthly loan payment which can be particularly important if the business doesn’t initially generate a profit. Disadvantages of Equity Cost: Equity investors expect to receive a return on their money. Interest is a fixed cost which raises the company's break-even point.

You probably will not want to give up control of your business, so you have to be … Disadvantages of equity finance. However, there are drawbacks of equity finance too. Debt financing is nothing but the borrowing of debts, whereas equity financing is all about raising and enhancing share capital by offering shares to the public. With equity financing, there is no loan to repay. The sources of debt financing are bank loans, corporate bonds, mortgages, overdrafts, credit cards, factoring, trade credit , installment purchase, insurance lenders, asset-based companies, etc.. corporation sources funds from an investor who agrees to share profit and loss to the extent of its share without expecting any fixed return (interest etc

3. They will look carefully at past results and … You may not want to give up this kind of control. Less burden. Loss of control: There is a cost to pay for equity financing and the majority of its potential advantages that your investor provides to your business. It's worth considering that: Raising equity finance is demanding, costly and time consuming, and may take management focus away from the core business activities. Disadvantages of Equity Financing. Equity financing places no additional financial burden on the company, however… You will have to share the control of your business which seems to be biggest disadvantages of equity financing. 8 Disadvantages of Equity Financing The investor will require some ownership of your company and a percentage of the profits. Advantages vs. The main advantage of equity financing is that there is no obligation to repay the money acquired through it.