What Is Private Equity?

Private equity is one of many options a business can utilise to raise capital and gain an injection of cash. Equity allows businesses to sell shares in the business to investors, who will earn returns as the business grows.

Private equity differs from public equity in that private equity refers to ownership of stock in a business that is not sold publicly (i.e. on the stock market).

While private equity has a number of useful applications, it is important that businesses do not become overly reliant on equity to raise capital. Typically, a financially healthy business raises capital via a combination of debt (usually commercial lending or asset finance), to best-manage risk.

When is private equity the right route to take?

Private equity can be a helpful facility for businesses in a range of different situations and levels of maturity.

PE firms looking to execute a full takeover of a business are typically interested in larger companies that are already established in their industry. Companies with long-term leadership that is coming to an end may also be of interest, particularly if there is no concrete succession plan in place.

If you are looking to partially or fully cash out of your business, or reduce the personal risk tied to yourself, private equity might be a good option.

For smaller businesses and startups, venture capital – another method of raising equity – might be a better option.

Things to consider before using private equity

However, private equity is not right for many businesses. While selling a majority share and surrendering control of your business might be the end goal for some business owners, those who wish to retain control must avoid over-reliance on equity.

Even selling minority shares means diluting your control to some extent, which could have unforeseen consequences later down the line. If you are prepared to dilute your share of the business, private equity might be a route to consider.

Bringing external parties into your business could also mean the added pressure of stricter performance KPIs and timescales independent of your internal business goals, as well as the possibility of restructures and staffing changes.

Private equity FAQs

Increase your business’s financial health

Business owners should not fear using private equity as a method of raising capital – but they must be aware of the dilution of control that can take place.

Financially secure businesses commonly raise capital via a combination of debt and equity, structured in different ways and over different periods to keep risk to a minimum.

At Anglo Scottish, we offer a range of different finance methods to support your business’s consistent and sustainable growth. Thanks to our range of 70+ funders, we can offer a wider range of lending terms than traditional banking institutions, giving you the financial flexibility you need.

Our asset finance options offer the opportunity to both own or rent your chosen asset, with finance lease, hire purchase and contract hire agreements available.

In terms of commercial finance, we offer a range of tailored arrangements aimed at different business expenses, from short-term plans like invoice finance or bridging finance to longer-term solutions like commercial mortgages and development finance.

Unsure which is right for you and your business? Contact our friendly experts today to find out more about the best option to suit you.