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Equity Loans: It's a Game of Trust
- By Edwin Linares
- Published 06/20/2008
- Growth Topics
- Unrated
Edwin Linares
E. Linares is Chief Visionary Architect at Commercial Magnet:: the new face of the online lending marketplace where borrowers and lenders connect; 6 points of service to help build your wealth! Commercial Magnet is the entrepreneurial platform that takes business owners from start to funding. Find out how a Business Loan or Working Capital can help fuel your business at http://www.commercialmagnet.com.
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Expanding the business? Buying a company vehicle? Adding of proprietary assets? Or, simply keeping business finances liquid. These are some of the major reasons why businesses take on loans. The question is what type of loan?
For entrepreneurs who wish to maintain 100% control of their businesses and are willing and confident to keep up with a monthly obligation to a lending body for the fulfillment of debt payments, a debt financing is opted.
In today's economy, however, there is an obvious difficulty in finding a lending institution that would be willing to invest in new businesses. For this reason, equity financing or equity loans are more popular nowadays.
Equity loans are not directly returned to the lenders. Instead, these lenders, or better referred to as investors, become the business owner's partners as they are technically sold rights to the business. This way, the investors gain a certain amount of influence on how the business is run.
Though equity loans are not technically repaid, investors do have the intention of regaining the cost of their investment in the long run, and more. What this means is that investors have the interest to grow the business towards success by providing a portion of the capital, business management advice and, if necessary add more business contacts.
In return, they expect high profit returns as a result of the business success that does not only cover the initial outlay of funds but generate additional income as well.
Contrary to debt financing, however, equity
loans allow investors a portion of the business control. There is now a need to get along with the new partners, whose points of view on the operation of the business will now matter.
A few suggestions on how to maintain a jointly favorable association with equity investors include:
1. Keep it simple. Clearly explain the bigger picture. Investors are generally not interested in the nitty gritty of the business operations. So, unless they ask, keep it low.
2. Be able to comprehensively discuss the business financial standing. Investors are deeply interested in cash flow issues, profit projections and the like. Keep them updated.
3. Maintain a proper channel of communication with investors. Assign a point person. It is not advisable to allow investors to converse with anyone and everyone in the business organization.
4. Be honest with your investors. Present sales figures as is and don't go over the top on your projections in hopes of impressing your investors. The truth will eventually come around, so cut through the round-about and paint the real picture to your investors.
5. Do not deny information. Bad news is bad news regardless of how it is delivered. In order to maintain trust among investors, be timely in the conveyance of news, whether good or bad.
6. Give investors easy access to information. Consider a website access.
7. Be professional in all dealings. Maintain the confidence of your investors by demonstrating your leadership skills in all aspects of the business.
Once you know the secrets keep your business attractive to investors, equity loans need not be a point of hesitation but must be viewed as opportunities for growth.
For entrepreneurs who wish to maintain 100% control of their businesses and are willing and confident to keep up with a monthly obligation to a lending body for the fulfillment of debt payments, a debt financing is opted.
In today's economy, however, there is an obvious difficulty in finding a lending institution that would be willing to invest in new businesses. For this reason, equity financing or equity loans are more popular nowadays.
Equity loans are not directly returned to the lenders. Instead, these lenders, or better referred to as investors, become the business owner's partners as they are technically sold rights to the business. This way, the investors gain a certain amount of influence on how the business is run.
Though equity loans are not technically repaid, investors do have the intention of regaining the cost of their investment in the long run, and more. What this means is that investors have the interest to grow the business towards success by providing a portion of the capital, business management advice and, if necessary add more business contacts.
In return, they expect high profit returns as a result of the business success that does not only cover the initial outlay of funds but generate additional income as well.
Contrary to debt financing, however, equity
A few suggestions on how to maintain a jointly favorable association with equity investors include:
1. Keep it simple. Clearly explain the bigger picture. Investors are generally not interested in the nitty gritty of the business operations. So, unless they ask, keep it low.
2. Be able to comprehensively discuss the business financial standing. Investors are deeply interested in cash flow issues, profit projections and the like. Keep them updated.
3. Maintain a proper channel of communication with investors. Assign a point person. It is not advisable to allow investors to converse with anyone and everyone in the business organization.
4. Be honest with your investors. Present sales figures as is and don't go over the top on your projections in hopes of impressing your investors. The truth will eventually come around, so cut through the round-about and paint the real picture to your investors.
5. Do not deny information. Bad news is bad news regardless of how it is delivered. In order to maintain trust among investors, be timely in the conveyance of news, whether good or bad.
6. Give investors easy access to information. Consider a website access.
7. Be professional in all dealings. Maintain the confidence of your investors by demonstrating your leadership skills in all aspects of the business.
Once you know the secrets keep your business attractive to investors, equity loans need not be a point of hesitation but must be viewed as opportunities for growth.