Debt financing and equity financing are two primary methods of raising capital for a business. Debt financing involves borrowing money from a lender, such as a bank or bondholder, and agreeing to repay the loan with interest. Equity financing involves selling a portion of ownership in the business to investors in exchange for cash. Both forms of financing have their own advantages and disadvantages, and the best option for a particular business will depend on its individual circumstances.
Debt financing is generally less expensive than equity financing, as interest payments are tax-deductible. However, debt financing also comes with more risk, as the business is obligated to repay the loan even if it does not have the financial resources to do so. If the business defaults on its loan, the lender may have the right to seize its assets.