Top Sources of Equity Funding Angel Investors. Access to business contacts, management experience, and other sources of capital. Dilution of ownership and operational control. Equity funding is a method of business financing in which the owner of a company sells shares of a company in exchange for initial capital.
These funds are used for immediate business operations or for long-term growth. The cost of shares is based on the valuation or value of the company, and investors become co-owners of the company. When it comes down to it, bank loans will be the most ideal type of debt financing, as they offer the lowest interest rates and the longest terms. That said, however, it's very difficult to qualify for bank loans, especially those that don't meet the highest credit requirements.
In addition, bank loan applications often require extensive documentation and are slow to fund. Equity funding means that a company relinquishes certain financial control and is in association (to the extent of the agreement) with another party. Equity funding is considered a long-term financial agreement, as a third party invests in another business in the hope of obtaining a return on capital. On the other hand, debt finance agreements usually last from a few months to a few years, depending on the term of the loan, and companies maintain full control of their daily activities and finances.
It's generally easier for small businesses to qualify for debt financing than equity financing. Unlike many other types of business finance, equity financing is often the most appropriate for startups and young companies, whose credit history and time in the Limited businesses make it difficult for them to qualify for traditional business loans. In short, equity funding offers lower-risk financing, without the burden of debt, because investors are only successful if their company does. As with current tax laws, the LLC is one of the most popular entity options among small business owners.
Individual donors are likely to have less money to invest in their business compared to venture capital groups or angel investors, and they may also have less to offer in terms of guidance and connections. Venture capitalists are more likely to offer funding to established companies than to new ones and often require a seat on the board of directors in addition to capital. So, when you're figuring out how to finance a company, your options will fall into one of the three categories above. Debt financing can also place restrictions on a company's operations, so it may not have as much leverage to take advantage of opportunities outside its core business.
Many small businesses start (and are still) sole proprietorships because of the relative ease of paperwork and taxes. With crowdfunding sites like Kickstarter and IndieGoGo, you present your business and your plans to the public, with the goal of raising a certain amount of money. Invoice financing is available through sources such as online commercial lenders and other alternative creditors. Companies with debt finance agreements are required to repay the money borrowed (plus interest or fees, depending on the terms of the loan), while those with equity financing agreements are generally not required to repay the capital invested.
Unlike a sole proprietorship, all risk and decision-making power are not limited to a single business owner or funding. However, you will need to set up your company and meet the qualification criteria of one of the major stock exchanges. However, that doesn't mean that it's always the right choice for a few smart entrepreneurs who want to do business together. While all general partners assume personal responsibility for the company's responsibilities, only a general partner should assume responsibility for overseeing operations and making daily management decisions.
When you're ready to start your business right away and you're the sole owner, setting up your company as a sole proprietorship may be your best option. If you are looking for start-up capital or a cash injection for you business, there are many options other the banks that will help you. Loan Brokers have well established relationships with the "money people" who have an special interest in helping small businesses who have no place else to turn.