Some small businesses loan companies offer what they call equity financing. This involves you the owner of said company to give up shares of your company in exchange for money.
The money you receive for the equity of your business you can use for immediate business operations and or long term growth. When investors buy equity shares of your business its based on what your company is worth and they become part owners of the business.
When you’re in a high growth business or an industry with expensive research and development you will likely go through several rounds of equity financing. Equity financing can come from different sources like an IPO (Initial Public Offering), private equity investors, angel investors and even family. I wouldn’t do family because Money and family rarely mix.
So Why is Equity Financing a Smart Option for Small Businesses and Startups
Equity financing is usually the best option for startups and young businesses, unlike many other types of business financing which is based on credit history and time in business. Which it makes it tough for young small businesses and startups to qualify for traditional business loans.
One of the best reasons to get equity financing, even if debt financing is an option you can raise capital as an inexperienced small business owner while getting an advisor with connections, expertise and a stake In the business’s future success.
This is why you try to choose private equity investors that are highly respected in your industry and has the inside connections to build your business faster and much more successful then just doing it by yourself.
So how does Equity Financing really work?
The basics of equity financing is basically a mutual agreement between you the business owner and investors to sell a certain portion of shares exchange for capital to build your business. That’s pretty much the basics of equity financing.
If you have a business that requires a large investment from investors they might try to gain control of your business by taking more than 50% of the shares. If this happens you will end up losing control of your business.
Make sure you’re reading any agreements with a lawyer before signing anything that you will regret later. So there are definitely some solid reasons to use equity financing to grow and expand your business but just beware of some of the pitfalls.
With that being said none of this can be obtainable unless you learn how to even make your business fundable and I can show you that with my free 5 part video series.
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