A business may determine that outside investment is necessary or appropriate to facilitate growth or reduce debt. There may be third-parties who are interested in acquiring equity as well. However, businesses must be careful in selling equity to outsiders as this activity is regulated by both federal and state laws. Correspondence concerning the sale can be tantamount to solicitation which is regulated. Both those interested in buying in and the company itself must be vigilant about making the proper disclosures to avoid potential pitfalls that may easily arise without diligence.
On the other hand, financing rather than equity sale may be appropriate for a given need. Issues concerning borrowing can include factors such as collateral, personal guaranties, interest, and confessions judgment, among others. Financial institutions regularly demand terms that businesses find extremely disconcerting upon understanding the full extent of the demands. Some of these can be negotiated, while some may be unavoidable. However, a business can truly evaluate the benefits of the loan only once it is fully aware of the potential risks.