Creating Financial Leverage Through Equity Finance
A cash injection for most businesses would be a great boost. One method of securing this boost is through equity finance. Equity finance provides share capital for your business from external investors. In return you will be asked to relinquish a share of the business. This may be either through a share of future profits or through a sharing the ownership of the business by giving up a percentage of the business.
The two main providers of equity finance for private businesses are:-
- Venture capitalists (also known as private equity firms)
- Business angels
What is right for your business?
Equity finance is normally invested in a business for the medium to long-term in return for a share of the ownership in. This may also include an element of control or management of the business.
Equity investors do not normally charge interest or set repayment deadlines. Payment is normally through dividend payments and depends on the growth and profitability of the business.
The Capital for Enterprise Fund is a new £75 million equity fund, which brings together £50 million of government money with £25 million from major banks. The objective is to provide longer term capital to businesses that have exhausted their traditional borrowing capacity. As with any form of borrowing there are always risks involved. Giving careful thought to these risks will enable you to arrive at the right decision about what is good for your business. It will be necessary to shop around as there are many venture capitalist and business angles that are willing to provide funding.
