What is equity finance?
Equity financing involves selling a stake in your business in return for a cash investment. Unlike a loan, equity finance doesn’t carry a repayment obligation. Instead, investors buy shares in the company in order to make money through dividends (a share of the profits) or by eventually selling their shares.
They only make a return on their investment if the company is successful. This means it’s in their interest to help and support the management team to grow the business and take it to its full potential.
What are the advantages of equity finance?
You may be able to start and grow your business using your personal savings and cash flow generated from sales. But this can often take a long time. With equity funding, you could grow much bigger and faster, enabling you to gain a competitive advantage in quickly moving markets.
These are some of the main advantages of this form of finance:
- Freedom from debt - You can focus on your growth plans without the burden of regular loan repayments. To find out more about how debt and equity finance compare, read our blog post, What is the difference between equity and debt?
- More capital - You can generally raise larger amounts of money with equity finance than you can with debt finance.
- Business experience, skills, and contacts - Some investors will bring much more than just money. They’ll provide added value in the form of expertise, knowledge, and contacts, which can help drive the growth of your business.
- Follow-on funding - Investors are often prepared to provide additional funding as your company grows.