Capital Raising: Forms of Funding
Understanding the various forms of funding is crucial in determining which would be the best funding option for a business.
Equity Investment
This is the process of raising capital through a sale of shares to equity investors. Equity investors take on the most risk in any business as they inject their own capital and require a return that is commensurate with the risk that they are taking in a business. Equity investors can range from institutions to individuals and can take on various forms.
Depending on the business stage and the investor investment criteria, business owners need to be open to disposing of a percentage of the business in order to raise capital.
Valuations of a business are critical especially when equity investments are considered.
Quasi Capital
This form of funding has characteristics of debt and equity instruments. This form of funding offers flexibility in terms of repayment dates, interest rates, and collateral required. The company’s future cash flow growth is an important consideration for investors.
Secured Debt
This funding option involves borrowing against assets and usually require cashflow to service.
Unsecured Debt
This form of funding refers to traditional lending or lines of credit with no collateral backing. The qualification criteria can be rigorous.
It is important to understand all the forms of funding because choosing an inappropriate funding option could have negative drawbacks that you may not be easy to remedy.
Please contact Discala Holdings if you would like to know how we can help you with your capital strategy to ensure it aligns with the organisation’s overall strategy.
