How Private Equity and Debt Financing Can Be the Perfect Mix
There are many options available to business owners to fund their businesses. What may not be widely known is that two popular forms of financing growth – debt financing, such as asset-based lending, and private equity – can be the perfect recipe and seamlessly work together to fund your business’ growth. It’s all about finding the right balance and working with the right partners who will help strategically guide you.
Here, we dive into how to determine the “right mix” for your business and why it’s beneficial to utilize both.
How to determine the right mix
It’s common that private equity is used to help a new business launch, while debt financing – such as asset-based lending – is utilized as the company experiences growth. Debt financing helps the business grow faster and further. When it comes to finding the right mix, however, there isn’t a “one-size-fits all” to determine when it’s best to get funding from private equity and debt financing.
The best first step is to have a conversation with financial partners who you can trust for providing an effective balance. What you may not be aware of is that debt-lenders –such as we at Gerber Finance – work very closely and hand in hand with equity investors. And this arrangement works vice-versa: Equity investors work closely with debt lenders as well. The right partners have the best interest of your business at heart and provide funding options that provide the most value for all parties.
When looking into investors, you may have some questions:
Does the age of your company matter to investors?
Yes and no. Many investors work with early stage and more mature companies but the answer is a little more complex than that. As we mentioned above, there really isn’t a “one-size-fits all” option when it comes to whether or not private equity works best for your business, and during what stage. Ultimately, what’s best for your business will be determined by your company’s long-term goals, cash flow, and the vision of it’s leaders.
What else factors into an investor’s decision to provide funding?
A big factor is whether or not the investor thinks they can add value to the business. To understand this, they really get to know the team and the business objectives.
Investors will work with, and look very closely at, the business’ management team in determining whether or not they have the vision to achieve the growth they desire. If the goal is to entire a brand-new market with a new product, what are the plans to get there? A well-thought-out plan, and having backup plans, is key to securing needed funds. Additionally, investors will also look at market size to determine if an opportunity is worth investing in.
Pro tip: Having an investing partner who is willing to pass on a good opportunity because they don’t think they can add value is very telling. It means they’re selective and only sign on when they know they will provide value. Business owners: Make it a point to ask each prospective investor about opportunities they have passed on and why. This will ensure you are aligning yourself with an investor who wants to provide value only.
Once you get the needed funding, what’s the key to success?
Above all, business owners who attain funding must manage expectations and be completely transparent. If you are at this stage of having gotten the funds you need, have discussions – together – with your inventors and lenders. It’s essential to success and finding the right path for your growing business. You’ll have a financial partner who will steer you in the right direction and provide the upmost value.
Listen to what the experts have to say
Still wonder or have doubts about how private equity, combined with debt financing, can make your business dreams a reality? Need a more in-depth explanation? Then listen to our podcast: “How Private Equity and Debt Financing Can Be the Perfect Mix for Your Growth.”
Jennifer Palmer, CEO of Gerber Finance, has an in-depth discussion on this topic with guests Paul Pruett, CEO of Designer Protein; Vern Christensen, Managing Director of PCG Investors and Chairman of Designer Protein; and Brent Knudsen, Founder & Managing Partner of PCG Investors. They all know, and have benefited, from the right mix of private equity and debt financing.