The process or means of acquiring
capital necessary to conduct a business
activity. Two of the most common forms of financing are
debt financing and
equity financing. In debt financing, one
borrows money, usually from an institution, with the promise to return the
money with
interest at some point in the future. This provides capital to the borrower and a
profit to the
lender. In equity financing, a company
sells portions of ownership to those who are interested. Unlike debt financing, equity financing usually raises capital without incurring liabilities, but the
risk exists that the company will not raise enough. An alternative to both debt financing and equity financing, especially for
start-ups, is using money from
personal savings to pay for activities.