Private equity in essence is a risk capital that is provided in an array of situations such as financing start-up businesses, working capital to existing businesses, company restructuring costs, purchase of large quoted corporate entities and the list goes on. Examples of private equity investments are buy-outs where investors together with a team of management personnel pool their resources together to purchase shares in a company from its current owners.
Benefits of Private Equity
Private equity lenders are more flexible as compared to banks and other lending institutions when determining borrower’s qualifications to get a loan. They are also less demanding in examining loan applicant’s position and his financial background. Because the private equity investment is made by a venture capitalists or an angel investor, the decisions are made faster as compared to situations where there is a large credit committee to analyze an application.
Another benefit of capital equity is that it is long term and aims to help organizations succeed and witness more growth. This is because when you obtain funding from private equity companies or individuals, they in return get a stake in your company. What this means is that the money that the private investors will be getting from you is dependent on the earnings and growth of your business. As such they have to ensure that the business is run in an effective and efficient fashion for optimal benefits. This is the reason why a majority of venture capitalists and angel investors invests only in businesses with high potential of growth.
Businesses funded by private investors tend to grow faster as compared to businesses financed by other lenders. This is because the investors combine capital with proficient management skills to propel the business to greater heights of success.
Government Involvement In Promoting Private Finance
Efficient Fiscal and Monetary Policies
The government should put in place very efficient fiscal and monetary policies as a way of promoting private finance in the United Kingdom. Monetary and fiscal policies usually affect interest rates, inflation and taxation and thus should be analyzed carefully so that they do not affect private funding negatively. Government should also plan its spending appropriately to avoid crowding out effect.
Legal Enforcement and Regulations
The UK government should give favorable regulations to private equity investors to promote their operations in the country. Also, the rights of private investors should be well protected. Private investors will not be willing to invest their hard earned money in a country where they cannot exert corporate governance or protect their investments from the management or owners of the companies they have invested in. Therefore, the UK government should ensure that the investors’ interests are taken care of properly and law enforcement is effective.
Conducive Macroeconomic environment
The UK government should ensure that the macroeconomic environment is conducive for businesses and investments to thrive. Some of the things that can affect macroeconomic adversely are; corruption, poor infrastructure, political instability and the list goes on. Well developed infrastructure and political stability in the country will boost private equity investment.
The UK government has to put measures in place to promote private equity finance because it will really help many companies and individuals who want to expand their businesses, restructure their companies and many more using private equity.