What is equity finance and is it right for your business?

Category : Property

Equity finance is share capital invested in a business for the medium to long-term in return for a share of the ownership and, sometimes, an element of control of the business.

Unlike lenders, equity finance investors don't normally have rights to interest or to be repaid at a particular date. Their return is usually paid in dividend payments and depends on the growth and profitability of the business.

Because equity investors share the risks your business faces, equity finance is often referred to as risk capital.

Is equity finance right for your business?

Different forms of equity finance suit different business situations.
Venture capital is most often used for high growth businesses destined for flotation on the stock market - with shares available to the general public - or sale.

Business angels can offer investment, particularly in the early or growth stages of development, in return for equity.

Because of the risk to their funds, investors expect a higher potential return than for safer, more secure investments. Equity finance is likely to be most suitable where:

The nature of a project deters debt providers, e.g. banks.
The business will not have enough cash to pay loan interest because it is needed for core activities or funding growth.

Questions on Equity Finance

Are you prepared to give up a share in your business and some control? Investors expect to monitor progress and many seek involvement in significant decisions.

Are you and your key people confident in the products and services of your business? Does it have a unique selling point that singles it out?

Do you have the drive to grow the business?

What industry experience and knowledge does your management team have? Is there a variety of skills?