Types of Equity Financing for Small Business

There are several methods available to help you get financing for your business. some business owners love to take out credit cards and bank loans because they are more convenient.  Others go for organizations that specialize in funding start-up businesses with equity or use other equity financing methods.

Equity financing is basically gathering funds from investors to finance a business. It involves raising money by giving portions to the company, named shares to the investors.  Using equity means you are selling part of the ownership interest in the business

These are some of the equity financing methods popular for business owners

Initial public offering (IPO)

IPO is great for companies that have decided to go public. Going public is basically transitioning to a publicly traded company. The companies offer up initial shares on a public traded market for example in the New York stock exchange rate. 

This funding will require you to develop the offering in compliance with guidelines established by a security and exchange commission.  When your IPO is registered and approved the security and exchange rate will give your business a listing date. After this, all you have to do is make sure investors are interested in the shares.

Small business investment companies SBIC

 The small business administration regulates the SBIC which is licensed to provide funds to strat-up and small businesses. This is a well known method, in fact a competitive one when it comes to funding. Because of this, the process of securing a loan using this method can be very long. However, the requirements are less stringent than the other types of equity financing methods.

Angel investors for equity financing

Angel investors are typically investors who have a large amount of asset and willing to provide financing for start up businesses. The investors are wealthy people looking for a high return on their investment but are very stringent about the business in which they invest in.

Some groups of angel investors look into investing and providing operational and technical knowledge for start-up businesses.

The mezzanine financing

The mezzanine financing is basically a combined financing that uses both equity and debt. The lender makes a loan and if it succeeds, the company will pay back the loan under some negotiated terms.  In the mezzanine debt, lenders make their own terms concerning the financial performance and requirements for funding. 

It could be the ability to clear off all the current debts or high shareholder equity.  The main benefit for borrowers in the mezzanine is that it has more value than any traditional loans. it is a higher form of equity and debt,  which is considered to be equity on the balance sheet by accountants.

Venture capital

Here, venture capital firms provide you with finding in exchange for shares or ownership of the business.  The venture capitalists look for high return rates when they invest their money in different companies.  How is this different form agent investors?  The venture capitalists do not use personal funds when they are investing in the start-up businesses.