If you are looking to avoid debt financing when starting your company, chances are that you will opt for equity financing. This means giving up a stake in your business to investors for a share of your company’s future profits. It allows you to avoid the often tedious monthly repayment terms and interest rates that other finance options come with. So what are some pros and cons to expect from equity funding?
Pros of Equity Financing
Flexible Repayment Terms
Relying on equity funding comes with flexible terms, with investors only recouping their investment when your company becomes profitable. If your company fails, you will be exempt from repaying the loan, minimizing any losses your company may be experiencing.
Rapid Scaling
Equity funding is a fast way of obtaining significant funds that numerous companies require, making it possible to take care of urgent operational needs. With this, businesses can experience rapid scaling, with enough funding helping them to take advantage of one-off opportunities that allow them to get ahead of competitors.
Ideal for High Growth Industries
If you are a start-up in a high-growth industry, equity financing will be ideal for your company. Venture capitalists are attracted to companies with a promise of high growth, with businesses predicted to generate high rewards being the best candidates for equity funding.
Cons of Equity Funding
It May Be Hard To Get
Getting equity financing requires proof of a strong business plan, with investors opting for companies that show a high promise of profitability. Due to this, some companies may miss out on funding due to a lack of a solid foundation.
Investor Control
Unlike other funding options, investors get partial control of your company, with involvement often based on the percentage of equity in the business. This means they will likely have a say in how your company is run, with control falling on the majority shareholder. This also puts you at risk of removal from your leadership position due to a majority vote.
Ultimately, choosing equity financing will depend on your company’s needs, with the above pros and cons shedding light on what to expect. If you need funding for rapid scaling, reach out to Speed Funding today. Our team can help customize a financial plan that suits your long-term goals.