Equity providers are more interested in the growth potential of the company. Their objective is to invest an amount now and reap the rewards of a 5 to 1, or even 10 to 1, pay off in three to five years. Since the objectives of investors are different from lenders, the factors they evaluate in determining whether to invest are different from lending sources. Growth potential is based on the quality of management of the company, product brand strength, barriers of entry to competitors and size of the market for the product. The reasons funds are required, or uses, may lend themselves more to debt than to equity or vice versa.
Expansion capital can be debt or equity.
Start up funds most often come from equity sources. A turnaround situation, refinancing a delinquent loan, covering a deficit in revenues, could be either, but in these cases the financing will come with a high price. The stage of the company can be an indicator of the risk involved. While neither debt nor equity would be prohibited at any stage, the older and more established the company is, usually the less risky it is. The product may still be just a prototype.