The Pros and Cons of Hedge Fund Capital

Since you’re busy running your business, you may not realize the full spectrum of financing opportunities available to you. You may have heard of credit lines, term loans, SBA loans, and other conventional funding vehicles.

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The Pros and Cons of Hedge Fund Capital

Since you’re busy running your business, you may not realize the full spectrum of financing opportunities available to you. You may have heard of credit lines, term loans, SBA loans, and other conventional funding vehicles.

However, you may not want to pursue these “traditional” loans — or you might be shut out of them due to falling short of lending standards.

That’s where hedge fund capital comes in. Hedge funds consist of high-net-worth investors seeking specific investment opportunities with higher potential returns than traditional investments (such as publicly-traded stocks and bonds).

Your small business may be able to attract the investment it needs from a hedge fund if you can demonstrate future earning potential. 

Business Capital Consultants has a strong understanding of hedge funds, and we’re able to connect you with one that fits your business’s needs. 

But we also want you to be informed about hedge fund capital, so we’ve compiled some of the benefits and drawbacks of using it below.

The Pros of Hedge Fund Capital

  • Lower Requirements

If your business is young or your credit is low, you may be unable to obtain “traditional” financing. However, hedge funds are open to more risk when they see return potential. If you can persuade a hedge fund of your future growth, they’ll be happy to invest in your business.

  • Your Business May Fit In Their Portfolio

Hedges funds are abundant out there, and they all have different goals. Some hedge funds may be looking specifically for your business. If you find one, talking them into offering investment shouldn’t be too hard.

Of course, having expert help that can find these hedge funds for you doesn’t hurt.

  • Flexible Financing Structure

You can create a financing deal with a hedge fund in a number of ways, such as stocks or convertible notes (debt instruments that the hedge fund can convert to shares of stock in your company). Because of this, you can create an arrangement that suits your business best.

  • Aligned Incentives

Hedge funds want your business to succeed as much as you — your success equals higher returns for them.

The Cons of Hedge Fund Capital

  • Confusing Financing Structure

Hedge fund lending isn’t as straightforward as traditional lending. Although having several financing structures available gives you options, it can also cause confusion.

Working with an expert can ensure you don’t make any mistakes in the confusing hedge fund capital world.

  • The Hedge Fund Has Equity

When a hedge fund invests in your business (if they go the equity route), they gain partial ownership. That means they have a say in your operations. 

This isn’t a big deal if you have the same viewpoints as the investors. But if your opinions clash, then you may have new problems to deal with.

  • The Hedge Fund’s Returns

If the hedge fund invests in your business, and thus gains equity, they are entitled to a certain portion of your returns. This can be much costlier than a fixed-interest, low-rate loan.

Is Hedge Fund Capital Right For You?

You may have struggled to get fair financing — or any financing at all — through traditional avenues. In that case, hedge fund capital can provide the funding you need to grow your business.

Understanding the hedge fund capital world is tough, though. Business Capital Consultants is here to help.

We look at your current financial picture to determine your best option. If we think hedge fund capital would work best, we’ll then paint your financials in the best possible light to attract investment from hedge funds. We’ll handle the hard work because you have a business to run.

 

Schedule your free 30-minute consultation with Business Capital Consultants today.

Business Capital Consultants is here to help if you aren’t sure which short-term financing source is right for you. We’ll deal with the paperwork and phone calls for you so you can get the funding you need without wasting valuable time.

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