Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What type of financing involves selling ownership interest to investors?

1. Debt financing

2. Equity financing

3. Venture capital

4. Grant funding

The correct answer is: Equity financing

Equity financing is a method of raising capital that involves selling ownership interests in a company or project to investors in exchange for funds. Unlike debt financing, where the borrower repays a loan over time with interest, in equity financing, the investors receive shares or stakes in the business, providing them with potential profits through dividends or appreciation in the value of their shares. This form of financing is especially useful for startups and real estate projects, as it allows entrepreneurs to access necessary funds without incurring debt. Investors in equity financing take on more risk than those providing debt, as their returns are contingent on the success of the venture. This aligns the interests of both parties, as both the entrepreneur and the investors benefit from the project's success. In contrast, debt financing involves loans that must be repaid regardless of the business's performance, venture capital is a subset of equity financing focused specifically on high-growth potential startups, and grant funding typically does not require repayment but is usually earmarked for specific purposes or projects rather than offering ownership equity.