Equity financing is a common term used today in the financing markets. It is one of the credible means of financing, wherein the business owner sells off part of his or her business to gain operating capital from the lender. The sale is usually executed to either a financial institution, or to a private investor, or this sale may even go to anyone in family relations. If this business is a small one, within the retail, or service or food and beverages sector, your close friend or family relationship is your investor.
The good thing is that this is a friendly financing between you and your investor. Both of you sit together across the table and talk about the fair and legitimate means of financing your business, whereby you gain the operating capital.
Advantages of Equity Financing
Business owner may very likely seek the investor for equity financing. Here are the reasons stored behind it:
No Need to Show up Credit History
The good idea is that your investors are looking at your business. They are investing in your business dream. Most of the time, the prospective investors are searching for commercially viable aspects involved in your business. Such investors are least concerned about your credit history and how you are maintaining the cash flow. Therefore, equity financing becomes one of the top-notch priorities for businesses that have just started off.
No Interests and No Repayment Issues
In traditional loans, you always have to be concerned about repayment debts and high rate of interests. But with equity financing, you just have plain sailing. Your investor will not ask for extra costs of paying off high interests on the loan. Operational expenses generated through equity financing will not be of any burden.
Build Long-term and Sustainable Relationship
Equity financing would get you on the top of financing as you will build a great and sustainable relationship with your investor. You and your investor are profited with such a relationship. Such relationships are valuable when you are seriously considering your business to nurture.
Equity Financing has a Few Limitations Too!
With this type of financing, you may lose the control. Your investor will have a share in the business, and he is giving his opinion in running the business operations. The investor may share a part of maximum control on your business, and much of it depends on the kind of profit-sharing deal you have entered with the investor. Another limitation could be to find the right type of investor to fund your business. Angel investors come in when you are starting a tech start up, but with something new and innovative, you do not have them on your office chair.
You may also like to read: Top Benefits of Investing in Mutual Funds
You Still have the Call!
Equity financing in its casual form is something where the investor is anticipating a good return on the value. It makes profit sharing quite a predictable phenomenon and more effectively structured.
Your knowledge on equity financing is spruced up. You will have the advantage to go for this type of financing, and ensure the stability. It is going to be a great stable workout for you and your family business.