Debt refers to the source of money which is raised from loans on which the interest is required to be paid and thus it is form of becoming creditors of lenders whereas equity means raising money by issuing shares of company and shareholders get return on such shares from profit of company in form of dividends.

Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company. The main advantage of equity financing is that there is no obligation to repay the money acquired through it. Equity financing places no additional financial burden on the company, however, the downside is quite large.