Using equity capital raised from the public markets is tried, tested and generally trusted. But private equity (aka venture capital) is less established and certainly less trusted. Yet this huge pool of finance offers private businesses an ideal route to growth.

The UK market is Europe's most mature. The industry's trade body, the BVCA, has no less than 230 firms, together investing funds of over £32bn. Many funds are aimed at mid-sized companies and there is a lively, well populated and well funded herd eager to identify businesses with exciting growth prospects. Unlike banks in the UK right now, private equity houses are flush with cash and keen to invest.

So why the skepticism amongst private company owners about this form of finance? The private equity industry can probably shoulder the blame for explaining its case poorly. That was at least until it came under intense scrutiny in 2007 spurred by a union-inspired form of 'witch hunt'. Rising by necessity to the challenge of greater transparency, the industry at last began to explain how, since starting in the early 1980s, it has been responsible for huge increases in employment, wealth and enterprise growth. Alignment is oft cited as its key advantage over other forms of finance: Investors align their own incentives with those of management because they share ownership of the equity. Further, a consensual approach is used to plan and develop the business. Last but not least, building towards a successful sale at the end of the investment rewards both company owner and investor.

There are several key benefits of using private over public equity from a business owner's perspective. Funds are committed and are long term (typically 5 years plus). Banks may have offered in the past but they don't today. Positive cash flow generated by the business is used to enhance shareholder value, for example by reinvesting in asset purchases. Funds can also be used for any number of growth paths - acquisitions, buying productive assets, recruiting new people and growing working capital to sustain sales increases.

Furthermore, support comes not just in the hard form of cash. Private equity investment executives develop expertise in working with management teams to support their plans. To find out more, I would recommend dipping into Private Equity Demystified: An explanatory guide by John Gilligan and Mike Wright (www.icaew.com)

Ian Leaman is a partner at Buckingham Corporate Finance