Which Of The Following Options Is Not An Example Of Equity Financing For Operational Expenses? A. Borrowing From A Private Bank, Using Inventory As Collateral, B. Selling Ownership Shares To Friends And Family, C. Using Profits From Previous Sales, D


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Connor Sephton answered
Equity financing is a particular type of finance and so the answer to your question is C: Using profits from previous sales. Effectively, the profit made from sales would be yours to decide what to do with and if that  means reinvesting it in your business, then that is your decision - but it is not equity financing.

Equity finance is share capital that is invested in exchange for a share of ownership, and in some instances, some element of control in the running of the business. Unlike traditional lenders, it is usual for equity financiers to be unable to charge interest on the investment, because it is not a loan, or to be able to dictate a time when it has to be repaid. Instead, they will receive dividend payments when the business shows profit.

Deciding whether to take advantage of equity financing needs careful thought. It can be beneficial if a particular business idea appears to be too risky for the more traditional lenders, or if a business cannot afford the repayments of a more usual loan. On the other hand, you have to be prepared to give up a share of your business and some of the control over it.

To interest an equity lender you need to have a unique selling point that makes them believe that your business will be more successful than a safer investment, and that you have the motivation and ambition to drive it forwards successfully.  These attitudes also need to be apparent in your management team and key players in your business.

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