Corporate Financing is a funding model that allows small to medium sized businesses to raise capital. This funding is provided by large companies and/or high net worth individuals.
Types of Corporate Finance
There are two common types of corporate finance:
- Debt Capital: This is where a small business takes out a direct cash loan from a large company or high net worth individual to fund their operation. The loan is repaid at a future date at terms agreed to by the lender and the borrower.
- Equity Capital: This is where a small business exchanges equity (shares) in its operation for capital from a large company or high net worth individual. This means that the lender becomes a part owner of the borrower’s business.
*In many cases the finance is a combination of the two
Why Choose Corporate Finance?
Corporate finance provides SMEs with an alternative investment strategy to common capital providers such as banks and building societies. It also allows companies to raise the money they need to fund or expand their operations easily without having to satisfy strict eligibility criteria from the lending sector.
It also provides flexibility. The borrower don’t have to take out a direct cash loan. If a company would prefer to pay for the expansion capital that they need by exchanging it for shares in their company, with corporate financing they can. This funding model also allows SMEs to forge connections with industry leaders. This allows growing operations to draw on the talent and experience of successful companies and individuals in their field to diverse and streamline their own operations.
The Benefits of Corporate Finance
Corporate finance can provide SMEs with a number of benefits. It is a bespoke funding model. This means that large companies and high net worth individuals prepare bespoke funding packages that are tailored specifically towards the business they’re planning to finance. This means that with corporate finance, SMEs can utilise a funding arrangement that is specifically designed to boost the success of their own operations.
It’s also easy to access. SMEs often turn to banks and building societies to secure loans to expand their ventures. However the lending sector prefers to give loans to low risk, cash rich companies which means it traditionally sees smaller businesses as a risk they’re not willing to take with their money. Larger companies and high net worth individuals are more willing to invest in SMEs.