Why Businesses Use Private Equity Financing

When most small business owners think about great ways to finance their businesses, they may think of small business loans from a bank. However, many might be timider to mention private equity financing. If you are a business owner who is brave enough to seek this kind of funding, you can see incredible results.

 

What Is It?

 

To fully understand the benefits of private equity financing, you must first understand what it is. It can get complicated, but you should at least understand the basics. First, a fund or firm invests in your business with lots of money. In fact, most deals start at $100 million and up.

 

Then, that company has a stake in your group. The money helps your business grow and flourish into a profitable enterprise. Then, the investor may sell its stake for a sizeable profit. It’s a win-win because you get the capital when you need it and the firm gets money back on its investment.

 

Plenty of Money

 

Why should your business choose private equity over all the other types of financing? There are a few distinct advantages. First, there’s the sheer amount of money. These types of deals can get your company hundreds of millions of dollars to invest in growth of all kinds. Think of all your business could do with that kind of cash.

 

An Active Investor

 

The next significant advantage is the active involvement of the investor. These companies are well-versed in turning companies into empires. Once it has a stake in your business, it can put all the expertise to work for your business.

 

The professionals at these firms can help you re-think your business structure and make every dollar stretch further. Naturally, this can lead to some conflict. However, many companies find that this hands-on involvement helps corporations thrive.

 

High Return on Investment

 

When your investor has a lot of skin in the game and the expertise to help you grow, you can see serious returns. In fact, a study in 2012 found that over two-thirds of these deals result in a growth of 20 percent or more. Better yet, half of the companies in these deals saw a yearly increase of 50 percent or higher.

 

This type of financing can make some business owners nervous. However, it can be a great way to infuse your business with cash and see incredible growth. Because the investment firm is so closely tied to your company, you can work together to turn your company into a significant player in our industry.

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