- 16 Jan
4 benefits which makes equity financing the right choice for your upcoming huge commercial real estate project!
When it comes to commercial real estate financing you can find a lot of financing options available in the market. However, equity financing suits you best if you are looking for financing you’re huge commercial real estate project.
EQUITY FINANCING | DEFINITION:
Equity financing is a financing method to raise capital through the sale of shares of an entity. This is not a loan and there is no fixed repayments obligation. However, the lender becomes the owner of the entity and is entitled to receive the dividend/profits.There are so many reasons behind the statement in the first paragraph and you will find a lot of advantages of equity financing. Some of them are elaborated in below paragraphs:
A BETTER CREDIT RATING:
If you are an entrepreneur who believes in expanding the business at a fast pace then you must be requiring financing for your upcoming multiple projects. And others cash flow requirements of current business operations. This is obvious that good credit rating makes you in a better to position to get loans from a financial institution to fulfill your requirements. Going for equity financing helps you in keeping a good credit score by eliminating the necessity of any personal guarantee. Also, being a business it will help you in maintaining a lower debt to equity ratio which will save you from a bad credit score. In easy words, the equity financing does not work like other financing methods and do not affect your credit score as this is not a typical loan. This is basically an additional advantage of equity financing over other financing methods.
Having valuable contacts, which is need of every business today:
In getting equity financing you get in touch with big investors having multiple other businesses. As the people investing their money in equity financing must have multiple other sources of income from where they generated such huge amount. You can surely get closer to them as you become business partners. This will, not only help in getting good services at better rates from the other businesses of the investors but also they would be able to advise and refer good people to you from all the fields from lawyers, accountants or attorneys to suppliers.
There are good chances of getting more investments as well when required in future for new ventures:
This perk of equity financing will come into play when you will get good profits to your investing partners from the first commercial real estate project. As the investors always like getting the best return on the huge funds they put into your business, they will be happy to invest even more money through equity financing on your upcoming projects if they are getting a reasonable return from their first investment. However, once you are in touch with investors and they are making good money from your project as well, you are more likely to get more money through
equity financing for your new or upcoming projects from the same investors. This will save you from getting into a new hustle for more funds for your new projects or ventures every time. If you think yourself of a successful entrepreneur who just needs investment, equity financing surely relieves you from thinking about how to get funds to start a new project immediately.
There is no obligation for monthly or annual repayment:
This is one of the best advantages of equity financing. As a matter of fact, equity financing is not a loan so there is no obligation of repayments. Yes, you read correct, in equity financing instead of taking a loan from the investors you make them your business partners. The investors will start receiving funds as soon as your commercial real estate project will start generating profits. There is no risk at your end and you do not need to worry about any repayments. While in taking a loan you are responsible for making periodic payments including the loan, interest and service charges of the institution. You are bound to make these payments as per the terms of your contract with the financial institution even if you don’t make a single penny from the project.
Usually, huge commercial real estate projects do not start making cash inflows immediately as it takes a lot of time in making the property operational for your business. However, without any inflows, this is not possible to start making repayments as if you have enough cash in hand then you will not be looking for financing at the first point. As the investors are your business partners in equity financing and there is no obligation on you to make fixed repayments, it will help you focus on your long-term goals instead of being worried about making repayments.
These advantages of equity financing make it the best financing method for huge projects. However, if you do not want to compromise on the ownership of the entity and want yourself to be the 100% owner of the entity in papers then equity financing is not for you. Basically, equity financing is advised when you are looking for huge amounts of money without any worries of repayments.Thank you very much for taking your time and reading this article. If you still have any questions or confusions regarding equity financing or need help in getting it at earliest, please feel free to write us at firstname.lastname@example.org. Or call us at our United States — Free toll-free number 1-800-880-0349 anytime; our representatives would be more than happy to assist you.