{"id":2842,"date":"2020-03-23T17:45:27","date_gmt":"2020-03-23T17:45:27","guid":{"rendered":"http:\/\/localhost\/2020\/swoopMW20\/?post_type=knowledge-hub&p=2842"},"modified":"2023-11-29T17:19:21","modified_gmt":"2023-11-29T17:19:21","slug":"equity-finance","status":"publish","type":"knowledge-hub","link":"https:\/\/swoopfunding.com\/za\/knowledge-hub\/equity-finance\/","title":{"rendered":"Equity finance"},"content":{"rendered":"\n
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\n \n What is equity finance? <\/a>\n <\/h5>\n <\/div>\n\n
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Equity finance refers to the capital an external investor injects into your business in return for a share of ownership (equity) and\/or some control of the business. Equity finance investors therefore have a claim on your future earnings but, in contrast to a loan, you don\u2019t pay any interest \u2013 nor do you have to repay capital.

If you opt for equity financing, you\u2019ll sell a stake in your business in return for funds. This is in contrast to\u00a0debt financing<\/a>\u00a0(e.g. a loan or a bond) where you take out a loan and pay it back over time with interest.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Why choose equity finance? <\/a>\n <\/h5>\n <\/div>\n\n
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Equity finance could suit your business if you have an expansion plan or project that lenders such as banks aren\u2019t willing to support, or if you want to avoid loan payments.

Your journey from startup to successful business might involve multiple rounds of equity financing from different types of investors \u2013 and at each stage you might choose different equity instruments. For example, business angels and venture capitalists may ask for convertible preferred shares rather than common equity because the former have greater upside potential (and some downside protection). If your business ends up growing large enough to go public, it would be common equity that you\u2019d sell to institutional and retail investors.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Is it suitable for an SME? <\/a>\n <\/h5>\n <\/div>\n\n
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If your business goes bankrupt, equity investors (equity holders) are the last in line to receive money.\u00a0Because equity investors share the risks your business faces, equity finance is often referred to as\u00a0risk capital.

Equity finance has two obvious advantages for businesses:<\/p>\n