Nowadays there are a so many different sources of equity financing for entrepreneurs to raise funds for a small business. Numerous business proprietors chose to take funds from friends, family members, bank loans, credit card, crowdfunding, etc. for financial requirements. Small organizations that are probably going to make a noteworthy benefit in a short with suitable capital advance. These kind of organizations are regularly cross the eligibility criteria and get qualified for equity financing.
Sources of equity financing for business expansion includes fund-raising through investors. This gives the ownership stake in company’s decision for both business proprietor as well as investors who hold company’s equity stake. At the point when a business proprietor utilizes equity financing, it means that they are selling some part of business ownership of a company to investors. Investors are really be a shareholder of an organization and in return, they may earn profits on increase of stock valuation.
Sources of Equity Financing:
There are various sources of equity financing for entrepreneurs. Some companies might be looking for sources of short-term equity financing where as some may welcome sources of long-term equity financing. Here we are going through some of the sources of equity financing
1. Business angels:
Business Angels (BAs) are well off people who put resources into high development businesses as an end-result of equity stake equity in the business. A few BAs contribute without anyone’s involvement whereas some as a contribution of a BA’s network system. BAs are highly experienced business people. They not only bring funds, they also bring their very own contacts, knowledge, skills to an organization.
2. Venture capital:
Venture capital is otherwise called private equity finance. Venture capitalists (VCs) mostly contribute bigger funds than BAs as an end-result of equity stake in a company. Venture capital is mainly interested in high-development businesses for sources of equity financing intended towards flotation or sale on the stock exchange.
Crowdfunding is the place where each individuals contribute funds or contribute small funds to your business idea. All this cash is then merger to enable you to achieve your financing objective. Every person that backs your business ideas will ordinarily get rewards or monetary benefit in return of the contribution.
4. Listing at Securities Exchange:
Joining an open market or securities exchange is another course of sources of equity finance through which funds are been raised. A listing at securities exchange can enable organizations to get to capital for development and raise finance for further improvement.
5. Small Business Investment Companies:
The Small Business Administration (SBA) regulates and licenses a program called Small Business Investment Companies (SBIC) that it has authorized to give finance to small businesses. While this type of finance is exceptionally focused and competitive.
6. Angel Investors:
Angel investors can give you a next level financing to your businesses. They are rich people or group of wealthy individuals who are searching for an exceptional high yield on their investment and are extremely rigorous about the businesses in which they wish to contribute or finance. Some These types of sources of equity financing for small business are continuously tracked by Angel groups Also keeps on effectively searching for a new businesses or startups for their investment opportunities, and furthermore they give specialized and learning to startup companies.
7. Royalty Financing:
Royalty financing is an equity opportunity in future product sales. It has a less formal process than any angel or venture capital financing. It is much similar to loans, it includes a funder providing finance for company’s business operations; the funder is then repaid as a royalty when company starts making profits or earnings. For example: Royalty financing can be determined as a percentage of profit on every sale of a product or services.
You can apply for equity finance to any of the above sources of equity financing. Apart from this, there are numerous sources of equity financing. We would suggest you to contact your chartered accountant who can provide you the complete information about it. After collecting all the information, once should also check for debt financing option. Upon then a business person should be in better position to take the decision on equity finance and can select the right type from sources of equity financing for business expansion.
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Basics of Debt Financing and Equity Financing for Beginners
- Chapter 1: What is Debt Financing with Examples?
- Chapter 2: Types of Debt Financing
- Chapter 3: Sources of Debt Financing
- Chapter 4: Advantages and Disadvantages of Debt Financing
- Chapter 5: What is Equity Financing with Examples?
- Chapter 6: Types of Equity Financing
- Currently Reading: Sources of Equity Financing
- Chapter 8: Advantages and Disadvantages of Equity Financing
- Chapter 9: Debt Financing vs Equity Financing – Advantages and Disadvantages
- Chapter 10: Debt Financing Quiz – Equity Financing Quiz - Questions and Answers
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