Business funding options don’t only offer financial help to a business, but they also provide experience, knowledge, and more determination to enhance growth in your business. An example is a private equity.
What Is Private Equity?
Private equity are funds financed by investors that buy and restructure private companies. The funds invested can be used to reform the business and help with things like acquisitions and technology.
Private Equity Approaches
Just like any other funding option, there are diverse ways to apply equity. Below are some of the ways.
• Growth Capital
Growth Capital is a form of private equity financing where funding is done for businesses that want to expand and grow, restructure or get in a new market. This type of public financing mainly focuses on established and profitable companies that require financing to make certain transformations. In some cases, growth capital is used to fund equity capital for a business.
• Mezzanine Capital
Mezzanine capital permits small businesses to borrow more loans than they can be allowed by traditional lenders to finance their businesses. Mezzanine capital is remunerated later compared to other debts, and thus the lender can either convert their investment into equity or ownership.
• Venture Capital
Venture capital involves funding where an investor provides resources or knowledge in exchange for equity. Nonetheless, they only finance growing businesses that show a prospective increase in profits and exhibit long-term growth.
At some point, the venture capitalist that had funded the business will exit. This may happen when a merger or acquisition occurs, the business becomes public, or if the venture capitalist sells the share to another investor.
Advantages of Private Equity Financing
Below are reasons why private equity is a good funding option.
• More Capital Flow: Private equity financing involves funding around the $100 million range. Such funds can significantly impact your business.
• Involved Investors: Most forms of private equity financing include an investor who funds the business and is always around to ensure their money is not misused. Private equity firms are always there to offer guidance.
Disadvantages of Private Equity Financing
• Loss of Ownership and Control: The moment you accept financing from a private equity firm, this means you have readily given them partial ownership of the company. Private equity financing is not done for free but at a cost. The private equity firm will want to be involved in all aspects of the company, such as decision making, and unfortunately, sometimes you may end up disagreeing.
• Difficult to Qualify: Qualifying for private equity financing is quite a hassle since they’re quite picky. The private equity firms only finance businesses that are well established and have a high growth rate that will incur huge returns after a short period. Your business may sometimes not meet their standards.
Here at Alternative Capital Source, we ensure we offer great financing services such as private equity financing. Contact us today for any financial services that you need.