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Tata Capital > Blog > What is a Business Equity Loan?

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What is a Business Equity Loan?

What is a Business Equity Loan?

There comes a time when every business requires funding to grow. And as a business owner, you must pick the ideal method to finance your business requirements. The most popular route that most entrepreneurs take in this scenario is a business loan. However, that’s not your only option. You can also raise money through an equity loan.

Read further to learn more about equity financing and how it differs from debt financing.

Defining a business equity loan

Unlike business finance, business equity finance uses your business assets as collateral for the loan. These assets can be shares or a stake in your company. And since it is a secured form of debt, there is a lesser risk for the lender than an unsecured loan. Thus, you get more flexibility in terms of repayment options and better loan terms.

Moreover, when it comes to equity loans, only your business assets are at stake. Your personal assets and savings remain secure. This finance method is especially suitable for businesses in their growth stage as there is no immediate burden of repaying a loan or pledging collateral.

Additional Read: What Are the New Business Loan Schemes for SMEs in 2021?

Advantages of business equity finance

• Less pressure

The most significant advantage of business equity finance is that it offers you an alternative funding source and takes off the pressure of repaying the loan. Hence, if your business is still new and has not generated a considerable profit, an equity loan is the way to go.

• Easy eligibility

More often than not, borrowers face rejection on their business finance applications because they cannot fulfill the business loan eligibility terms. When it comes to business finance, lenders give utmost importance to your creditworthiness. And if you lack a good credit score, the lender might not approve your loan.

On the other hand, equity finance has no ties with the credit system. So you won’t have to worry about overcoming enormous credit barriers to acquire the necessary funding.

• Opportunity to gain valuable assistance

Lastly, equity financing can help you form partnerships and professional relations with experienced investors. That’s because many investors wish to get involved and invest in growing businesses that have good scope. And their experience in the field can provide you with business acumen and valuable assistance in the form of professional contacts and management expertise.

However, it’s not all sunshine and rainbows, as sharing your company’s equity also means you lose some control over your business and will have to share your hard-earned profit. Also, if the business equity loan rates are high, you can lose a considerable share of your company.

Additional Read: How to Measure Financial Health of Your Business?

In a nutshell

Business equity finance is a financial tool that allows you to raise funds by pledging your company’s assets. However, weigh the pros and cons thoroughly before making a decision.

But if you don’t wish to share your business’s equity, you can opt for Tata Capital’s collateral-free business finance schemes. With our competitive business loan interest rates and flexible tenures, you can pay back the amount with ease.

Go through our business loan offerings and additional features here and apply for a loan to take your business to new heights!

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