Kavan Choksi Gives Insights on Small Business Equity Financing
Rather than trying to build more debts for your business, one can think of sharing ownership of the business in exchange for the funds needed for business establishment and expansion. This article will discuss the equity financing options for several types of businesses.
What is equity finance? Kavan Choksi elucidates
Equity financing is selling the ownership interests in a business to raise working capital. Kavan Choksi comments that the primary challenge for obtaining equity financing is finding the right investors interested in your business and willing to buy its equities.
Next, the volume of equity financing needed may also depend upon your willingness to share the control over the management of the business and the investor’s appeal to your business. By selling the equity interests in your business, you may also be sacrificing the autonomy in business management and complete rights to control the business.
Your personal motives in pursuing the business may determine the value of your business ownership. Selling off a big percentage of the business owner means that your investment in it may be short-term unless you try and retain the majority of equities in your business over time. It is noted that small business investors are not usually interested in maintaining their share in that indefinitely, but their objective is to gain maximum return and quit. Here the bottom line of equity financing boils down to whether you may operate a winning business for many years or sell your business interests for a good profit.
Different types of equity financing
For various types of businesses, you may think of various modes of equity financing.
- A sole proprietorship is the simplest form of business, but the options for equity financing in a sole proprietorship business are limited to the owner’s assets.
- General partnership businesses may require two or more owners, so in that case, equity financing is possible, and there are different avenues to explore for the same.
- Limited partnership businesses may provide only limited liability to a number of owners. So, equity financing is possible if they are not active partners in the business. There are working partners and investors for this model of business.
- Business corporations offer much more flexible and wider possibilities for investors.
- There are limited liability companies also, which put forth the scope of limited liability partnerships. There is limited legal liability to the owners. Equity financing is possible for limited liability companies also.
Like many other things in business, you need to be very careful about choosing the option of equity financing also. Sometimes, it may not be your need, so you need to do a thorough evaluation of the scope and risks of equity financing in light of your business status and situation to decide whether to go ahead with it. Kavan Choksi suggests the consultation of an expert financial advisor for businesses to determine whether they have to choose equity financing as an option or consider the conventional debt financing models.