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Finding and attaining affordable financing is an ongoing challenge for most businesses within the United States. Debt financing through bond issues and business loans is a common source of capital for established businesses. Equity financing offers flexibility for companies in a high growth phase. Equity financing is the process of obtaining funding from individual investors or equity firms in exchange for an ownership stake in the company. American companies have the opportunity to secure equity financing by obtaining a partner, acquiring funds from friends or family, working with a venture capital firm or angel investor, or by completing an initial public offering.

Partnership or Friends and Family

When a business is in its startup phase or is about to experience rapid growth, acquiring financing is a must. Because most methods of debt financing, such as bank or government loans, are not available in the early stages of business, it is common for business owners to seek out an individual or group of individuals to create a partnership. These individuals provide the funding necessary to meet the company's growing needs. In exchange for funding, the business owner offers an ownership stake to each partner based on how much he is able or willing to contribute. Often, partners in the company have some say in business operations and may hold a management or other authoritative position in the business.

Business owners who need financing but do not want to give up control over the business's day-to-day operations may reach out to friends or family members to obtain financing. An ownership stake in the business is offered as it would be with a partnership, but individuals are considered a silent partner in the business.

Venture Capital or Angel Investors

Privately held companies that have a high potential for exponential growth and a strong track record of profitability may be able to obtain equity financing through venture capital. This type of financing is common in the technology sector and is typically offered in much larger sums than what is acquired through partnerships or investments from friends and family. In return for financing, venture capital firms are given an ownership stake in the business, as well as a high level of control over daily operations. Venture capitalists insert experienced individuals from their firms into the receiving company to ensure the business is running in a profitable, efficient manner. Most venture capital deals are short term, but they can take a substantial amount of time to secure.

Angel investors are individuals or firms similar to venture capitalists who invest in growing companies, but are more focused on mission-driven businesses in their specific region. They are also more available to companies in earlier stages of operations and can provide financing in lower amounts than venture capitalists.

Initial Public Offering

For established businesses, an initial public offering (IPO) is a common source of equity financing. Through an IPO, companies raise capital by offering equity ownership shares to the public. Often, an IPO offers different classes of shares for purchase to institutions and individual investors, including common and preferred stock. This method of obtaining financing can be costly and time consuming and is typically done only after other sources of equity financing have been used.

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