Investment Banking vs Private Equity: How They Compare
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What Is Private Equity?
How Does Private Equity Work?
Pros and Cons of Private Equity
Pros of Private Equity
Provides an injection of capital that can be used to support and grow your business Avoids having to get a business loan (which, if your business is struggling, may come with a high interest rate) Can help your business move towards a sale or IPO
Cons of Private Equity
Can be a lengthy process, since it can take months to convince a private equity fund to invest in your business May require handing over some or full control over your business Because their focus is on generating profits, private equity firms with a controlling interest will often lay people off and/or replace talent
What is Investment Banking?
How Does Investment Banking Work?
Pros and Cons of Investment Banking
Pros of Investment Banking
Can help your company raise money for expansion and improvement Typically have deep networks of investors they can tap when raising capital Can be a powerful ally if your business wants to sell, buy another business, or offer shares to the public
Cons of Investments Banking
Typically don’t serve small businesses They are not a source of capital but, rather, help businesses raise capital Fees charged to facilitate fundraising, M&As, or an IPO can be high
Private Equity vs Investment Banking
Similarities Between Private Equity and Investment Banking
Are involved in raising capital for a business Seek to maximize profits for investors Are involved with placing the shares of companies into the hands of investors and facilitating M&A deals
Differences Between Private Equity and Investment Banking
A private equity firm helps businesses raise capital through direct investment; an investment bank helps businesses raise capital through indirect methods (such as by facilitating an IPO). An investment bank advises clients on transactions like M&As and restructuring; private equity investors are investors, not advisors. Private equity raises money among wealthy individuals and uses the money to buy businesses; investment banks find money for businesses by raising it in capital markets.
Getting Funding From Private Equity or Investment Banking Firms
3 Small Business Loan Tips
Generally, it can be easier for entrepreneurs starting out to qualify for a loan from an online lender than from a traditional lender. Lantern by SoFi’s single application makes it easy to find and compare small business loan offers from multiple lenders. If you need to borrow money to cover seasonal cash flow fluctuations, a business line of credit, rather than a term loan, provides the flexibility you likely need. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.
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