Equity Finance – The Good And The Bad
Being an entrepreneur is not easy. Taking risks in business ventures is part of what makes entrepreneurship exciting. The problem with being an entrepreneur is that even if you have a big idea that proves to be solid and logical enough to standout and achieve success, not having the funds necessary to establish the business that you intend to open puts a stop and obstructs the progress of your business venture.
When you do not have funds for a business venture you would like to open, the thoughts of getting a bank loan may seem promising as you will quickly get your funds once your loan gets approved. However, the thought of dealing with a banking institution along with monthly payments you need to make for that loan can be quite dreadful and nerve-racking. The thing is that there are other and more pleasant ways of acquiring funds that does not involve having to hand in any collateral. Equity financing is a finance strategy of getting capital for your business in exchange for part ownership in the business you intend to establish.
In business equity finance, the brains behind the business venture will be the one who has the main idea for the business and will contribute something unique for the business which is what will make the business more viable. Once an investor understands the idea behind the business and finds it feasible enough to invest some money into the business, then the entrepreneur will be able to get and receive the needed capital from the investor that is crucial in the opening of the business establishment.
Equity finance is good for entrepreneurs who do not have the necessary capital to physically establish the good idea that have for business. It is an effective alternative to banking loans as the risks involved are very little. Of course, the presenting of the business process and idea needs to be both enticing and viable to even attract any investors to the business concept. As such is the good thing about equity finance, but you also need to remember that there are certain downsides to using this finance method as a means of getting your capital.
One of the major drawbacks of equity finance is that the overall profit gained from the business you have coughed up, planned, and researched all about is distributed between you and the investors, depending on the percentage agreed upon prior to the establishment of the business. Even though the investors are just sitting wherever they are whereas you on the other hand do a lot of work in the business, the sharing of profit is still based on the percentage of ownership as dealt upon in agreement before the contract and funding was given.