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Equity Financing

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In recent posts I’ve been writing about small business loan options available these days.

These days, with more and more financing options to consider, the challenge is more about picking the small business loan best suited to your type of business and your current situation. Whenever possible, traditional bank financing is hands down the best choice for long term financing. The downside of traditional bank financing is the fact banks have the highest turndown rate for small businesses.

One financing option to consider is called equity financing. This is where you sell shares of your company – usually at a very low price – and the investor owns a piece of your business forever. They will also probably tell you how to run your business.

Equity financing is best suited for start ups

If you’ve ever watched Dragons Den or Shark Tank you’ll be familiar with the concept of equity financing.

There is an interesting article about the high cost of equity financing. In one episode of the Shark Tank a Cupcake store needed to borrow $75,000. One of the “sharks” provided the money, got repaid in less than 3 months but also got 45 cents per cupcake sold – forever. Although the exposure on TV for the Cupcake store was fantastic, the store owner gives up profit FOREVER.

For the typical small business owner looking for short term financing to buy more inventory, renovate, do more marketing or just clear up some bills, equity financing is definitely not for you.

 

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