The Pros and Cons of Equity Based Financing

When operating a business, being able to raise money is a must.  You never know what trouble is going to be around the corner and you may need to borrow some money to make it through.  One way to raise funds is through equity based financing.  Equity based financing is when you raise capital for your business by selling stock in the company to investors.

There are good and bad to everything so let us first look at the pros of equity based financing.  The main major advantage is it is not your money.  If the business goes under, you are not on the line for repaying bank loans back thousands of dollars.  You can aim as high as you want and not need to worry about what happens if you miss.  This is a quick and easy way to raise capital for your company especially in a hurry.  Another advantage is you can focus on the task at hand and not need to worry about paying back bank loans.  This is nice because it frees you up to run the company.

While it is nice to not need to worry about paying the money back, equity based financing isn’t all pros.  One major con is if you are selling equity when the company first is starting, you can lose money in the long run because you must sell your shares so cheap.  This can be costly if your business ends up doing extremely well.  Another con of equity based financing is you lose a chunk of your company.  This means portions of money you make are now going to another person and they can also have a say in how the business is now ran. 

There are both pros and cons to equity based financing.  If you have any more questions, contact us at American Corporate Turnaround and let us know if we can be any assistance. 

What is one big tip to remember when raising capital?

Getting Your Business Going Without Bank Loans

When your company is starting out, it is important to begin financing right away.  Starting your business out is one of the trickiest things you can do.  With the economy the way it is, it is becoming more and more difficult to obtain start up cash.  Here are a few things you can do to get going.

First, if you have no money whatsoever, sell anything and everything you possess.  Anything you do not need that will not contribute to your company should be sold.  Say you have an extra car or a boat, get rid of it.  You don’t need your thousand dollar watch if selling it can help your company.  If your company pays off like you hope, you can buy those things again later.

 

Another way you can obtain some funds to get your business going is to take out the equity on your house.  While it is not ideal, it is a quick and easy way to obtain some early financing for your business.  If you do go down this road, make sure to set some of the money aside to help make your monthly payments on the money you just took out.  You do not want to get in over your head when it comes to your house.

 

Another way to help obtain funds would be to borrow from people you know.  Friends, family, and acquaintances looking to make an investment into something are a good way to get a small amount of startup money.  Many times if a company is too new or too small, banks will be more reluctant to give them a loan.  It is important to still get any agreement in writing as to avoid any possible conflict later.

 

There are many ways to raise capital for you and your company to begin to grow.  Let us at American Corporate Turnaround assist you however we can. 

Tips on Raising Capital

Every company needs money but when your business is starting out, your business may not bring in money for the first year or two.  In the meantime you are going to need to finance your company so you can start running your business.  Before you just take any money you can find, here a few tips that will help you make the best decision.

First, always borrow more than you need.  When people are starting companies up, they realize they are going to have to owe people a lot of money.  While it is understandable that you do not want to be in more debt than you need to, many times smaller business fail is because they didn’t have enough money to continue financing.  There are many unknown business expenses that are going to arise that you may not have thought of.  Be prepared and over borrow, not under.

Next, conduct research on the various types of financing available for you and figure out what is best for your company.  There are many types of financing and it is important to make the right choice based on the time and manner in which you can repay it.  You do not want to get locked into a contract that demands quick repayment if you will not be able to achieve that.  Make good use of your internet and conduct thorough research on your options.

Last, make sure you find investors you respect and like.  When you borrow money from people, you begin a new relationship with somebody you will most likely be in business with for many years.  On top of lending you money, they will also be able to give you advice and assistance.  You need to find a lender who will be supportive and helpful towards you and your company.

There are many different types of ways to raise capital and American Corporate Turnaround would love to help find the type to suit you.  Let us know how we can help so we can start helping your business grow. 

What is a benefit of equity based financing?

What Mezzanine Financing is All About

As everyone who has ever taken a business class knows, you have got to spend money to make money.  You try to help your company grow but sometimes you are not able to obtain sufficient funds to help your business grow.  Many times a company will go to a bank to obtain a loan but if you do not have the collateral to back it up, it will not be approved.  One way to solve this problem is through mezzanine financing. 

Mezzanine financing consist of a hybrid mixture of debt financing along with equity financing.  In mezzanine financing, the company receives an unsecured loan from the lender.  In return for the loan, the lender will able to convert his loan into a stake in the company should the loan be defaulted upon.  Since they are done rather quickly and there is no form of collateral for the lender, the loans do typically carry a very aggressive interest rate of around 20-40%. 

There are many ways to obtain mezzanine financing.  A good source to start looking at is private investors.  Mezzanine financing appeals to private investors because of the high interest rate that will be paid back to them and the possibility of obtaining a stake in the company should they not be repaid as agreed to. 

Though it seems simple, not all companies looking for mezzanine financing will be able to get it.  First, the company looking for mezzanine financing needs to have a good track record of repaying lenders.  They also must have a solid plan for expansion or at the very least, company growth.  The company must also have an established product and steady business.  Last, the company must have a history of obtaining a profit. 

Mezzanine financing is a great way to raise money quickly for company expansion.  If you and your business are looking to raise money, let American Corporate Turnaround help you out.