Bank of Scotland's structured finance team explains the types available If you're planning to acquire some or all of the issued share capital in an established business, you will almost certainly need to raise substantial funding. As well as the assets of the business to be purchased, you will also assume responsibility for all of its financial liabilities. These will almost invariably include business borrowings of one kind or another. As part of the transaction, you will have to reorganise the shareholdings and restructure the entire funding of the business. Although the existing shareholders may wish to retain an interest, the ownership of the majority interest will generally be divided between the new management and the providers of risk capital or private equity, usually a venture capitalist.
Finance based on a stake in the business is known as equity.
The second kind of finance is based on the business's borrowing, and is known as debt. The structure of debt also needs to be carefully considered before the transaction can be completed. Some of the business's borrowing may be in the form of loans and mortgages. These are relatively easy to quantify and transfer because they are secured against assets such as property and equipment. Existing financial arrangements covering such assets are sometimes simply left in place as part of a deal.