Differences between private equity finance and bank loans

Banks have a legal right to charge interest on a loan, and to demand repayment of the loan by a specific date. This is the case whether or not your business succeeds once you have taken out a loan. In order to make sure that they get their money back, banks usually require you to secure your loan against business or personal assets - such as your home - which could be extremely risky if your business does not succeed.

However, private equity investors do not have these legal rights to interest and capital repayment, so the only way they can get their money back is through a capital gain if your business succeeds. They will want to take out more than they invested when they exit from your business. Therefore, they look for high-growth potential businesses to invest in, and are likely to be more hands-on than banks. They can also often bring useful expertise into your business.

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#finance #bankloans

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