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Is Equity Funding the Idea Funding For Your Business?

Venture capitalists and private equity investors are very similar types of investor. They give money and guidance to fledgeling companies for the returns associated with equity. But venture capitalists invest in beginning projects confident that they will receive a signficant dividend in the long term, while private equity funding companies look at later-stage companies that has the possibility of a clear exit strategy.

Equity funding firms invest in fewer projects and intend to increase their profit margins by selling off the company or going public within after a five-year term. Company owners will often make more profit and will have less hassle with private equity investors than they would by going public.

There are two major categories that you need to know about when it comes to business funding. It is debt funding and equity funding. Both of these finance options have their own advantages and disadvantages; making it simpler to find the company that is suitable for your project in the best ways.

Debt funding is concerned with borrowed money that has to be repaid - with interest - over a certain period. Debt funding can be either short term or long term. In a short term the full amount has to be repaid within a year. Long-term debt funding involves repayments for more than twelve months. With debt funding, all you have to do is make sure that you pay everything back. Debt funding is usually obtained from institutions such as banks and other traditional lenders. Debt funding requires you to make monthly repayments with interest.

Equity funding exchanges a share of the business for cash funds. This enables you to get funds for your venture without going into debt. Sale of equity means taking on investors. Many cottage industries find equity by bringing in investors to make their business profitable and get a return on investment.

The main benefits of equity funding are that even if your business goes bankrupt, you will not have to pay your investors back. Business resources do not have to be pledged as collateral to obtain equity. Businesses with adequate equity will appear more attractive to lenders, investors, and so forth. If you do not have to make debt repayments, you will have more cash in hand.

The main disadvantage is that you will no longer be the sole owner of the business and receive all the profits: your investors are entitled to their share. You may not have the final ’say’ in how your business is run. And you can’t claim payments to investors back against tax.

If you have a great business plan and are looking for vc funding for it, there’s a willing venture capitalist waiting out there to help you get started. Venture funding is simple to obtain if your business has real potential.

Edge Venture will help with href=”http://www.edge-venture.com/raising-finance-for-business-idea/”>raising finance for your business. Find the business funding you need from a database of hundreds of Business Angels and VCs. Visit Edge Venture now to find out more.

- Simon Murray

This entry was posted on Tuesday, July 29th, 2008 at 12:07 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.