Businesses need capital if they are to grow, and sometimes need finance solutions to raise capital. If you are unable to raise capital through a loan, equity may be an alternative solution.
“Equity can be a very good solution for businesses where they need capital to grow,” says Co-Director of Shire Business Loans, Jamie Donaldson. “And it then allows them to obtain future contracts, or increasing sales that they otherwise couldn’t achieve because they were constrained by cash.”
Generally, equity solutions should only be explored if a loan is really out of the question, and are most suitable for a business with relatively high turnover.
“Equity is generally sought after if their is no debt solution, because debt is cheaper than equity,” says Donaldson. “With equity you’re giving away a percentage of future profits, rather than a fixed percentage on what you’re borrowing.”
An experienced finance broker is particularly useful for those considering an equity solution, as it is a lengthy and complex process.
“Some brokers are able to source, or know people who are able to provide, equity solutions,” says Donaldson. “Generally this is quite a long process, six to eight months, with a considerable amount of due diligence.”
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