Ace the 2026 HSC Business Studies Finance Exam – Unleash Your Financial Prowess!

Equity financing primarily involves raising funds by selling ownership stakes in the business. This method allows a company to acquire capital without incurring debt, as it involves offering shares to investors in exchange for their investment. Equity financing essentially dilutes ownership among the shareholders, meaning they share in the profits, losses, and decision-making of the business.

When a business opts for equity financing, it is usually looking to fund growth initiatives, such as expanding operations, entering new markets, or developing new products. Unlike borrowing from creditors, which can increase liabilities and interest payments, equity financing can provide a business with the necessary funds while potentially bringing in investors who can contribute additional expertise and resources.

While investing in capital assets and increasing operational efficiency are important for the overall growth and productivity of a business, they are not directly tied to the process of raising capital through equity. Instead, they can be end goals or uses for the funds acquired via equity financing.