What is equity finance? Equity finance, simply put, is any type of investment activity in which a company makes an agreement to purchase an asset (usually with the assistance of money) at a pre-determined price, the value of which is determined by taking into consideration the value of all of the assets of the business. A typical example of this would be purchasing a car. If you are the seller, you sell the car for the price equal to the total amount of money invested in it, less your expenses on selling the car.
If you are the buyer, you are the “investor” and in general the equity holder. The buyer is given the option to either lend money to the company, borrow from the company, or use their equity to obtain a loan. Equity is used in many types of investment transactions. It is one of the most common forms of borrowing by private companies and organizations.
So what is equity, you may ask? Equity refers to the actual ownership of stock in a company. Stock, or shares, are an object’s representation in monetary terms of the ownership interest held by a person or group of persons. If you owned 100% of a company, that would be considered 100% stock ownership. Equity, in the stock market sense, refers to the actual ownership of the stock by a person, partnership, corporation, government, or other entity.
So what is equity finance then? Equity finance is the process of using the assets of a company to raise money for projects, increasing the capitalization of the company, or backing a venture. Equity can also be used to finance the purchase of property by a company. The sale or transfer of all or part of the company’s current or outstanding debt is also equity finance. It is this type of financing that often leads to Spin-Off Companies.
An equity finance funding solution can be a great option for a new business that needs some quick cash for start-up or expansion needs. Small business financing can be found through many sources such as the Small Business Administration, venture capitalists, personal friends and family and banks. Many banks will work with a business in which they originate most of their loans. They may also work as third parties to refinance an existing loan for the owner through the equity finance procedure.
On the downside, an equity fund may not create enough equity to finance a start-up or expansion project. Also, the company could end up using the equity for purposes that are not directly related to its operational business. For example, if the company wishes to acquire property, but needs to obtain financing to pay for the property, it could utilize the equity finance to accomplish the loan. On the other hand, the company could also use some of the equity to finance a research and development project or new hires.
Some equity funds also specialize in different types of businesses. For example, one such fund may have a special program for manufacturers and suppliers. Other equity funds will focus on real estate or financial instruments such as credit cards. If you need a specialized type of investor, you should ask the company or consultant that you are dealing with if they have any specific investments in mind.
There are advantages and disadvantages to equity finance. If you have a specific company that you want to finance, you may want to find out more about the equity finance market. There are a number of websites that can help you learn more about equity finance. You can also contact your local bank for more information on equity finance financing and how it may be helpful for your unique situation.