Majority of the business requires funds for starting and developing the business. Equity financing is one method adopted by many business people for raising the fund for their business. The equity finance can be defined as the fund which is raised by exchanging the share of rights of that business with the lender.
This type of financing will not require paying any interest rate on the borrowed amount and also no need to pay back the amount in a stipulated time. The equity finance can be provided by more than one lender for a particular business. All these equity holders have equal rights on the organization.
Apart from this, the profit generated out of the business will be also shared with these equity investors.
Usually companies which are present in stock exchange market will raise funds for their companies by selling the stocks to equity investors. The companies which are not listed in stock exchange markets will raise the money through many non public investors. In private business the equity finance providers can be classified into two. They are venture capitalists and Business angels. Venture capitalists are mainly used by business which is having high growth. But Business angels will provide fund during the business start up phase or during the development of the business. Many companies have started a program where the workers can provide equity finance to their company. Some discounts will be given to the company staffs to buy this equity finance.
The equity finance will be more beneficial when compared to the ordinary bank loans or debt financing. There is no interest rate involved in equity financing. No need to repay the amount to the investor in a stipulated time. Through equity financing full time cash flow is available, which might be required for the growth of the business. But equity financing takes more time for processing. You need to share the business management rights with the other equity finance lenders. Need to be complied with many legal rules and responsibilities.
It is very easy to find firms or organization that provides equity finance for your business. Make sure that these investments will really generate more revenue in your business.