Equity Line of Credit

An equity line of credit is a financing arrangement that gives a company the right, subject to agreed conditions and limits, to sell shares to a committed investor from time to time during a specified period. The amount paid for the shares generally depends on pricing terms established in advance, which may reference the stock’s prevailing trading price and permit the investor to acquire the shares below that price. Unlike a traditional loan, the company generally receives capital by issuing equity rather than borrowing money that must be repaid. Each draw can increase the number of shares outstanding and dilute existing shareholders, so the size, pricing formula, and remaining capacity of the facility matter to investors.