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When it comes to financing, most startup companies start with bootstrapping – using personal funds as well as petitioning friends and family to ‘donate’ to the new firm. After that they often turn to commercial lenders to secure a small business loan. In these days when loans are still hard to come by, there may be another option out there: equity investments.

Equity investments are money contributed by investors in exchange for equity or share in the company’s stock. The investors do not receive repayment until they sell their shares at some future date. Obviously this strategy will not work with all business types. Restaurants and retail stores, for example, will almost never generate the kind of revenue that will make its stock tradable. Yet for those startups that are conducive to equity investing this method can provide a great deal of cash at the outset.

Investors may still be friends or family or other angel investors, but unlike with bank loans, the investors do not expect to be repaid immediately or even in traditional financial ways. Sometimes investors look at equity investment as a way to share some decision-making control in a company. You will have to work out the details of how much control, if any each investor will have. Even if you do give not have total control over your company, with the help of equity investors who can avoid the strict terms and costly interest that would be required by a small business loan. And if the company fails, often you are not obligated to provide any remuneration to those investors, whereas a bank has fixed terms no matter the state of your business.

While it won’t work for every business concept, the use of equity investment can be a great way for some companies to round up the essential capital.


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources