Advantages to Firms

• If a large amount of a firm's cash flow is going towards debt repayments, then it is difficult for that firm to expand. Giving away some equity frees up that cash flow and allows the firm to use it to grow.
  
  

Advantages to Lenders

• The biggest advantage to lenders is they can get equity--and with it a share of profits--in a company. If a company is about to go bankrupt, a debt to equity swap is often a better deal than insolvency, as it is difficult to get the full value of a firm by liquidating it. Keeping it in business keeps the lenders profitable.
  
  

Other Definitions

• Debt does not have to mean money owed to lenders. It can also mean money owed to other parties. For example, if a construction firm does not have the capital to pay its workers, it can offer them equity. They lend their labor in exchange for wages, then swap those wages for equity.