I recently wrote an article on debt financing and wanted to extend the information of that article. I believe having a full understanding of your financing options as a business owner is important. This is why I want to explain the main difference between both equity financing and margin loans. Both are very similar in nature, but there are very subtle differences. After speaking with a few friends I realized that there isn’t a really good understanding of the differences between the two. So, let’s discuss equity financing vs margin loans. I also wrote an article on margin loans, for any questions regarding that check out that article.
The reason for me writing this article though is to simplify the definitions. When I first got into this world I couldn’t make out a difference. I had to dumb it down. So, really this blog is for the people who need all these complicated financial terms dumbed down. Don’t worry I’m here for you. With that said, let’s being!
What is Equity Financing?
So, what is equity financing? In a nutshell equity financing is when a corporation issues additional shares in the company in order to raise money. Think of it as the issuance of shares after the initial public offering (IPO). This is just a way to get more money for your company later on after the IPO.
What are Margin Loans?
Margin loans as discussed in my previous articles are a way for wealthy individuals to pull money from their shares. So, as an example, if you have stocks in a company you can put that up for collateral to secure debt. That’s really all there is to it.
Difference Between the Two?
Now, what is the difference between the two you ask? Well as you’ve read in the previous two sections there is a very clear difference. One is more corporation-oriented and involves selling additional shares later in order to raise more money for your company. While the other utilizes the shares or equity owned to acquire debt. See, it is just that easy. Hopefully, that was a pretty simple explainer and cleared things up. I say that because for me this took a minute to understand and remember.
Hopefully, this equity financing vs margin loans article was beneficial. I know some of these articles can come off as redundant. But I do that in order to provide you with additional details regarding a topic. Margin loans and equity financing can be quite difficult to understand at first. However, the more you interact with it the easier it is to digest.
If you are looking for a good book on this read Build. Don’t worry I’ll do a book review on Build soon.
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