Private equity investors fall into the same category as venture capitalist investors. They provide financial help and practical guidelines in exchange for equity for new ventures. But venture capitalists are putting money into novice projects that expect to receive significant long-term profit, while private equity finance firms are considering more developed ventures that enable them to have a clear exit strategy. For more details click Touchstone Impact Bond Fund in New York.
Equity financing companies are investing in fewer projects and intending to increase their profit margins by selling off the company or going public in less than 10 years. Owners of companies often get more money and deal with less red tape if they take the private equity route instead of going public.
You need to know about the two big business finance categories. It is the financing of debt and of equity. Both financing options have their good side and bad side; making it easier to find the investor that fits your business in the best possible way.
Debt financing refers to money that is borrowed and must be repaid with interest over a period of time. The financing of the debt can be either short or long term. Short-term debt finance requires a repayment of the loan within one year. Long-term debt finance involves more than twelve months of repayments. With debt financing your sole responsibility is to pay back your loan. Banks and traditional lenders are the main debt-funding sources. With debt financing you will have to make repayments with interest each month.
Equity finance is the money barter for a share of the business. This allows you to secure financing for your business without assuming a debt burden. Selling equity means taking investors on. Many small businesses get equity by attracting investors to make their business successful and make a profit on their investment.
The main advantages of equity funding are that you do not have to reimburse your investors even if your business goes bankrupt. It doesn’t require your business resources to secure equity. To lenders, investors etc., a business with adequate equity will seem better. Because your business will have more cash on hand because you don’t have to make debt repayments.
The main drawback is that you will have to surrender ownership to other investors and profit from a share of your businesses. The investors may have different plans and ideas to yours. And you can’t claim back payments against tax on investors.