What is Private Equity Financing?

Private equity financing is money that is invested in a privately held business. So, it’s in exchange for partial ownership of the business.

The invested funds might come from private individuals or institutional investors.  Regardless of where it comes from, there are many individuals and businesses ready and willing to invest in a make-sense business.

The goal of the investment is to earn more of a rate of return than they could get otherwise.

It can be like venture capital or angel investors where the investors can choose to invest startup funding. But usually the business has been operating for a while and needs money for expansion.

Private Equity Financing Details

Private equity financing often involves large amounts of capital. Still, there is no set limit of how low or high the investment can be.

Despite the fluid nature of this type of financing, there are criteria a business will have to meet. So this is in order to get this type of business funding.

Methodology

The investors will look for assurances that you will use their money wisely. And they want to see how the business is increasing the likelihood that the investment will bring higher returns than they would expect if giving business loans.

The investor will balance the risk of investment loss again the possibility of investment gains. They then make a decision as to whether the risk is manageable and makes sense.

The investor will look to see if the entrepreneur assumes more risk exposure than the equity partners or investors. They want to see what stage is the business currently  is in if they are a startup. Or they may want a well established business looking to expand. And they will check how much experience does the management have in the industry. They also want to know how large is the investment request. Plus, they need to know how it compares to the size of the business.

The investor will also look to see if there is a quality business plan with realistic goals and projections. So this is to see if there is a marketing plan complete, look to see what is the company’s history including its historical financial and market performance. And they want to see if the business is willing to accept restrictions an investor restrictions places on the investment.

Really…?

The last question may seem obvious at first glance, but it’s on the list for a reason. Private equity investors can set their own unique requirements and restrictions for business funding. And you must be willing to agree to them. The good news though is that you have more negotiating leeway. That’s because this is private funding and not financial institution lending.

Companies may be experiencing difficulties getting approval for business loans in the current economy. But private equity financing has always been available. Unfortunately many business owners simply don’t know how to go about finding or raising this type of money.

Private Equity Financing Isn’t The Only Option Out There

There are many sources of capital available today ranging from angel investors to private equity financing. The one that is right for your business depends on many factors. Check this blog post, as we cover many of them.