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Taking On A Business Equity Partner

By: Garry Crystal - Updated: 11 Oct 2012 | comments*Discuss
Business Equity Partner Business Partner

Taking on a business equity partner is not an option open to many small businesses but it is possible. However, even if taking an equity partner was a funding solution it will mean giving away a percentage of the company. This means that the business owner will not have full control over the company. There will also be certain requirements before the equity business partner route is a feasible option.

What Is An Equity Partner?

Equity partners will usually only be available to well established businesses that are making good profits. In most cases the least amount of money a partner will be looking to invest is £250,000. When this investment is made the partner will usually give the loan in return for a share in the company. The size of the share will be dependant on the amount of money invested. In the majority of cases the capital will be required by businesses for reasons such as company expansion.

Risks And Benefits To Investors

There are of course risks for investors when supplying this type of investment. Partners are open to the risk of any losses the company makes before the loan is repaid. On the other hand the investor will see returns in the form of dividends and will also benefit from appreciation of the capital supplied. When the loan has been repaid to the investor then they are free to sell their shares. In most cases the company will be offered a first chance to buy the shares back.

Start-Ups And Funding

There are different equity funding options available to the start-up business on a smaller scale. There are a number of investors that look to supply this type of funding to smaller businesses, especially if the business idea is a strong one. These investors are usually known as Business Angels and they will take a very “hands on” approach when investing in a new company. This can be very beneficial for the start-up not only in terms of a capital investment but also in the experience and contacts the angel can provide.

Finding A Business Angel

There are a number of companies that are designed to place businesses in touch with investors. These companies are easily accessible via the internet and have a number of ways that they can help businesses that are looking for funding. Benefits to using these companies will include:
  • Help and advice with placing investors and businesses together
  • An available directory of investors that can be accessed by businesses
  • A code of conduct that promotes good working relationships between investors and businesses
  • Finding the right type of funding for businesses whether it is private funding or funding through the government
  • Forwarding business plans to potential investors on behalf of businesses

Venture Capitalists

Venture capitalists are another funding option available to well established successful businesses. Again, most venture capitalists will provide capital in return for shares in the company. However, venture capitalists will usually require what is known as preference shares. These shares take preference above any other type of shares with regards to the repayment of the loan and dividends. The dividends payable to the investor will usually be fixed as stated in the investment contract. The usual rate of return for investors will be around 30% although this figure can sometimes be much higher.

Gaining an equity business partner can solve a lot of funding issues for a company, especially if they are looking to expand. Investments will not only be financial but will also come in the form of the experience that the investor can provide. Businesses should always thoroughly research their financing options before signing any contract. Taking advice from financial advisors and business experts will be beneficial when considering this type of funding.

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