What are equity finance and venture capital?
Possible ways to expand without borrowing.
Dealing with growth can be challenging for a small business and generally cash flow is an issue. Business loans or lines of credit are options, but here we look at a possibility that doesn't involve interest or repayments - equity finance.
The challenge of growth
Businesses don't always close their doors because no one wants their product or services. Sometimes small businesses fail because demand for their product exhausts their cash flow. The secret is to plan ahead and look at external sources of money.
Business loans & lines of credit - the burden of repayments
If you need extra cash, you could take out a business loan or line of credit <Check out Essential #31>. However, they can be difficult to get without bricks and mortar security. What's more, you might not be able to meet the monthly repayments. In this situation you might want to look at equity finance.
What is equity finance?
Equity finance (also known as equity funding, venture capital or private equity) is where a private investor gives you funds in return for a share - or equity - in your business.
The benefits of equity finance
With equity funding, you don't pay interest and you don't make monthly repayments. The investor is speculating that they'll get a return on their money when your business increases in value. Not having regular outgoings can be a huge advantage for a small business - particular with a start-up enterprise.
Giving up 100% ownership
Many entrepreneurs are reluctant to relinquish any stake in their business. However, having a smaller share of a larger entity can sometimes be worth more than 100% of not much. Seek professional and legal advice before entering into any equity finance deal. To learn more about equity finance, contact an MFAA member today.
Want another business finance tip?
Why would I lease my company cars? Check out Essential #37
