Investment finance is a way of bringing more capital into a business.  With this form of finance, alternatively known as equity finance, a portion of the business is sold off to investors in the form of shares.  The only businesses that can avail themselves of this form of financing are those with limited liability.  This means that the likes of sole traders or partnerships are not able to use this form of raising business capital.

Owners of businesses who raise extra capital through equity finance should understand that they will be losing total control of the company to a third party, in this case the shareholders.  The advantage, however, is should the share price rise then the value of the owner’s share of the company will also increase.

Any owner deciding to sell shares in his company to raise finance must also realise that he will no longer be the sole person making key decisions for the business.  Those who have bought shares – the shareholders – are also entitled to their input.  That can be advantageous, particularly if they bring in new skills and experience.

Investment finance also has other advantages.  Unlike business loans, if they can be secured, or bank overdrafts, there are no interest payments to drain the company’s financial resources.   Any business risks are shared with the shareholders.  But anyone considering investment finance should understand that it can be a very time consuming and expensive solution.  These factors should be considered before deciding to raise business capital through equity finance.

Investment finance for business can be raised in several ways.  One is known as a buyout when those involved with the company buy a controlling share.  Private equity firms often purchase shares in companies with the potential for high growth, while venture capitalists will seek a shareholding in companies with potential. 

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