Equity financing
In one sentenceThe business obtaining funds by bringing in new partners or by the owners increasing capital, in exchange for a share of ownership and profits instead of a repayment obligation.
Simply put
There are no installments or repayment dates, so it is lighter on liquidity. But the new partner shares your profit as long as they remain a partner, and may share your decisions.
That is why it may be more expensive than debt financing in the long run if the project succeeds, and kinder than it if the project struggles.
Worked example
The same store in the “Debt financing” example brought in a partner who pays 500,000 SAR in exchange for 25% of the company, and the expected profit is 400,000 SAR.
New partner's share400,000 × 25% = 100,000 SAR
Installments dueNone
What remains for the original owner = 400,000 − 100,000300,000 SAR
Don't confuse it with
Debt financingIts cost is fixed and ends with repayment, and in the same example the original owner keeps 360,000 SAR in exchange for an obligation to pay installments.