Equity participation – Providing an incentive to make a loan.
Equity participation gives the lender an incentive to make a loan because they share in the increased equity of the business. If the lender feels that the business has a good model with plenty of potentials, they can have a stake in the company and will see an increase in profits as the company grows.
The level of participation can be calculated from a variety of things including gross receipts, net income, or with an EBITDA valuation model. The latter simply means earnings before interest, taxes, depreciation, and amortization.
Equity participation transactions provide the lender with additional incentive to make your loan and can make the process of obtaining a business loan more viable for you by providing innovative and structured loan programs. These loans are an effective tool for lenders and allow you greater access to the capital you need.