Business Link - Equity Finance

Equity Finance

What is equity finance?

Equity finance is a way of raising money in return for a share of your business. The investor would probably also expect to have some control over the way the business is run.

You will not usually have to pay interest, or return the money by a certain date. Instead, your investor expects to benefit from dividend payments.

You will need a professional and compelling business plan to successfully apply for equity finance.

Who provides equity finance?

The two main providers are:

• business angels; and
• venture capitalists, also known as private equity firms.

Business angels are wealthy people who will often invest in a new or growing business.

Venture capitalists usually provide significant amounts of money for rapidly growing companies that will eventually float on a stock market.

What are the advantages of equity finance?

• Equity finance may be available if your bank will not provide a loan.
• You will not have to pay interest on a loan and can use spare cash to invest in the business.
• An external investor may bring invaluable knowledge and experience to your business.
• Business angels can make fast decisions about whether or not to invest.

What are the disadvantages of equity finance?

• You may not wish to give up a share in your business or control over the decisions you make.
• Business angels can be hard to find.
• Dealing with venture capitalists can be a long and complex process, and will involve the payment of legal and accountancy fees – even if your application is unsuccessful.