iQuanti: Equity financing can be a viable funding option for small business owners. To understand small business equity financing, an important type of commercial real estate lending for small businesses, let's answer some of the biggest questions surrounding it.
How Does Small Business Equity Financing Work?
Small business equity financing involves raising money from investors. You can sell "shares" of your business to family members, friends, and others. At this point, anyone who owns a share is a partial owner of your company.
How Much Equity Financing Can You Receive?
You can earn as much small business equity financing as you'd like. As a small business owner, you can meet with investors to promote your company. From here, you can sell shares to fund your business.
What Types of Small Business Equity Financing Are Available?
Here are five of the most popular equity funding options for small businesses.
1. Small Business Investment Company (SBIC)
The Small Business Administration offers an SBIC program that provides venture capital funds to small business owners. These funds come from venture capital firms that pool investors' money to finance startup (and potentially high-risk) companies.
2. Angel Investment
An angel investor offers small business equity financing with the expectation of a high return on investment. Angel investors are typically wealthy individuals or groups that use their personal funds for equity financing. In addition, they often provide knowledge and insights to help a small business realize its full potential.
3. Venture Capital
Venture capitalists operate in a similar fashion to angel investors. The difference is that venture capitalists do not use their personal funds for equity financing. Instead, a venture capital firm can pool together money from several investors who want to invest in your company. In some instances, venture capitalists may invest in your company and request a seat on your business' board of directors, too.
4. Mezzanine Funding
Mezzanine financing can provide an excellent funding option for mid-sized companies. For instance, a lender can provide your business with mezzanine funding with certain conditions, such as requiring you to achieve various financial performance goals.
Are Small Business Equity Financing Alternatives Available?
Debt financing offers an alternative to equity funding. With debt financing, a creditor can lend you money for your small business. You will be required to repay the creditor with interest in the future.
Is Small Business Equity Financing Right for You?
Equity financing can provide a great funding option for small business owners. However, small business equity financing can be risky. Even if you obtain equity funding, it does not guarantee your business will succeed.
Debt financing options are readily available as well. You can use debt financing to receive funding for your small business. At the same time, debt financing does not require you to sell shares of your company. Thus, it ensures you can maintain sole business ownership.
On the other hand, debt financing requires you to work with a creditor. And you are responsible for repaying a creditor's loan, regardless of your company's performance.
If you're uncertain about whether this financing is right for you, evaluate all of the options at your disposal. Furthermore, meet with a financial consultant who can help you assess these options in detail. Then you can identify the best financing option for your small business.
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Original Source: What Is Small Business Equity Financing?