Access to Finance: Business leaders "misunderstanding" equity finance

BUSINESS leaders are misunderstanding what an equity type investment involves and missing out on this valuable type of finance, experts have warned.

In our Access to Finance supplement, sponsored by Reward Capital and Finance Yorkshire, business leaders from across Yorkshire discuss the options available. Click here to download it.

Equity finance involves selling part of your business to an investor and as well as giving away a stake in your business, a certain level of managerial control will also be surrendered.

Keith Williams is the regional manager for UK Steel Enterprise, the regeneration subsidiary of Tata Steel, which provides business finance, focussing on those parts of the UK that have been affected by changes in the steel industry. Williams says people still don’t always perceive equity linked investments as the best choice for their business.

“Even if an equity-based investment is the appropriate solution for the situation, a lot of owner mangers will not take it on,” he says. “Therefore the real market for equity investments will always be far, far smaller than the market for debt funding. There’s still that perception that people don’t want to sell equity, even when they can see it will enable them to do something in terms of step growth that they may have not been able to do before.

“It can bring in more experience around the board table, too. There’s a significant proportion of owner managers who do understand, but a lot who don’t because they want to retain 100% control.”

Finance Yorkshire can provide equity linked investments to businesses, management teams and entrepreneurs, from as little as £100,000 up to a maximum of £2m per company.

Alex McWhirter, chief executive of Finance Yorkshire, said: “People misunderstand what an equity type investment involves. Therefore, in terms of equity, the best deals we have been able to complete have been with a professional advisor involved managing both sides of that deal.  Over the past three to four years, it has become more tricky though because people are still valuing businesses at pre-recession costs. There needs to be some moderation.”

 

 

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