Debt financing involves businesses borrowing money from lenders through the sale or issuance of debt instruments, which can be secured or unsecured. Generally, the business enters into an agreement to pay back the value of the debt instrument plus any accrued interest at a future date. Examples of debt financing include bank loans, lines of credit, and business credit cards. Depending on the financial condition of the corporation, debt financing generally has the advantage of being a quicker method of financing. Debt financing also has the benefit of the business retaining complete control of the business, since the business can disassociate itself from the investor after the repayment of the debt.


Another method of raising capital for a business is through equity financing. In equity financing, the owner of the business raises capital in exchange for a portion of the business (i.e. equity). The key benefit of equity financing is that the owner of the business can utilize the entire investment, without the concern of paying back the loan. One disadvantage of equity financing is that in return for the investment, you must give away part of your business, which may ultimately cause the business owner to lose control over a portion of the business.

Our business law team represents businesses in both debt and equity financing transactions. contact us today to book an initial consultation.

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Disclaimer:The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.

About the Author:

Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.