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PRIVATE PLACEMENT OFFERING INSTEAD OF FEDERAL SMALL BUSINESS LOANS

Written by: Jayson Curuso

Article Overview: Over the past fifteen years of assisting small business owners to obtain financing, only a hand-full know of any type of financing out-side of the SBA program. They are not aware of the many different equity financing programs available to the small business owners.

PRIVATE PLACEMENT OFFERING INSTEAD OF FEDERAL SMALL BUSINESS LOANS

We are putting forth a series of articles pertaining to equity financing through Evan Carmichael to inform and educate the small and medium business owners and entrepreneurs on the various programs we have worked successful over the past ten years. Other articles tiles will deal with the following subjects; Using a public shell company to raise capital, a Special Purpose Acquisition Company, Reverse merger Acquisition, etc. in each of the above case a Private Placement Memorandum (PPM) will be required which is what this article is about. If a company does not have at lease two years of profit making history then debt financing (loan or line of credit) is out of the question.

This outline is designed as a basic guide for companies seeking to raise money privately via a private offering of securities in reliance upon both federal and state exemptions from securities registration (commonly referred to as a "private placement offering"). A private placement offering is designed for business issuers who wish to privately solicit equity or debt investment to fund growth and expansion in a hurry. We have banking sources that will place from one million up to 25 million in collateral into start-up and expanding companies to enhance their balance sheet and make them more attractive to Angel investors when seeking equity funding.

Raising capital through a private placement offering (debt or equity) is a great way for a company to raise seed capital to start initial business operations, increase working capital, or finance the launch of a new product line. Our firm can provide a mechanism for your Company to raise equity (or debt capital) by selling its shares of common stock (or notes) in a private placement offering. We also specializes in the development and structuring of unique equity (or debt) offerings designed to maximize the potential of your private securities offering and to make investment in your Company an attractive alternative to other investment vehicles (see "Types of Offerings" below). We can also provide your Company all of the necessary corporate support before and after successful completion of the offering.

LINE OF CREDIT LOANS OR Private Placement Offering Package (PPM)
The Private Placement Offering Package was designed with the small business securities issuer in mind. It allows small companies to raise equity or debt capital privately without having to file a registration statement with the Federal Securities and Exchange Commission or any state securities agency. A Private Placement Offering is developed in reliance upon both federal and state exemptions from securities registration. In some instances, audited financial statements are not required. The Company is not required to make any state or federal filings until after the Company receives investment through the private placement offering. After initial private placement moneys are received, the Company is required to comply with federal notice filings pursuant to the Securities Act of 1933, as amended (the "Securities Act") and to file notice filings in each state where the private placement offering was made from and into. This form of exemption from the registration provisions is available to small securities issuers pursuant to Regulation D, Rule 505 or 506, of the Securities Act. In general, this exemption allows the Company to raise up to five million dollars in an equity or debt offering with certain limitations and guidelines. We can assist your company with the entire private offering process.

The end result of a private placement offering process is that you and/or your employees will be able to privately solicit friends, family, and prior business acquaintances for investment moneys - which can in certain circumstances include your suppliers and certain customers (no general solicitation allowed however). In addition, these securities (normally common stock), once purchased, are considered to be "restricted" (e.g. pursuant to Rule 144 of the Securities Act - which allows a company a period of growth and stability before applying to become listed on an organized exchange). Below is a short synopsis of the process of positioning a company to conduct a private securities offering. Although not all of the following is included in our private placement offering package ,Through our reputable resources We take pride in providing a high level of professional securities guidance for a much lower cost than a securities law firm.

Initial Corporate Preparation INSTEAD OF FEDERAL SMALL BUSINESS LOANS
Our firm will assist the Company in developing and maintaining an accurate corporate minutes book. This is normally required for the Company to initiate a private securities offering. During this process, our team (with your help) will formulate a corporate plan designed to familiarize you with the intricacies of running a corporation and conducting a private securities offering.

Pre-Offering Preparation
During this phase, our firm will develop the private placement memorandum or PPM (e.g., business plan inside of a full disclosure, legal document); provide consultation regarding the initial capitalization of the Company and structure/type of the Securities offering; development of the investor suitability and representation letter (e.g., "Accredited Investor" and "Sophisticated Investor" Qualifications); development of private subscription agreements; an Attorney Opinion on the Legality of the Private Offering; and other miscellaneous required documents to prepare your company for its private offering of securities.

Post-Offering Filing Assistance
Our firm will provide assistance to your company of all post offering notices and correspondence with both federal and state securities commissions including the Form - "Notice of Sale of Securities Pursuant to Regulation D" and state-specific notice filing requirements.
There are several different types of offerings that you can utilize to raise capital for your company privately - methods which may provide additional (and needed) incentives for prospective investors to invest. The following is a list of the more common types of private offerings that We can help structure for you:

Discounted Common Stock Offering
Many investors (even close friends and family) are going to be wary of committing to an "early-stage" capital investment unless they feel that they are really getting a good "deal" for their investment dollar. When offering common shares of your company to raise capital - particularly when your company is a new venture with little or no track record -it is often prudent to offer common shares at a substantial discount to what your company might sell its securities for in a direct public offering aimed at the general public. Offering discounted common shares to initial seed capital investors (before a public offering) may convince many potential investors to invest at the start-up stage, when their investment is most needed, rather than wait for a public offering.

Convertible Preferred Stock Offering
Preferred shares differ from common shares in three main respects. First, unlike common shares, preferred shares generally have no voting rights in the company. Second, preferred shares have preference over common shares if- in the unfortunate event - the company is forced to liquidate its assets. Third, and most important for "initial" capital investors, most preferred shares carry provisions for guaranteed rates of return paid to the preferred shareholders (i.e., most preferred shares pay a dividend, coupon or interest based on the face value of the investment, similar to bonds or other forms of debt securities). Convertible preferred shares are preferred shares that are convertible, either at the option of the company or the shareholder, to common shares. Convertible preferred shares give a potential investor the comfort level of guaranteed income on their investment, along with the option to convert to common shares when the company becomes profitable, goes public or another event occurs.

Stock (Common or Preferred) Plus Warrants Offering
Another option is to offer stock with warrants attached. Warrants are defined as options to purchase additional shares of the company at a later date at a given exercise price. In essence, warrants serve to further motivate potential investors to purchase shares in your company by allowing each investor additional upside on their investment if and when the company ever goes public and the company's common stock reaches a certain price.

Debt Offering
Many private capital investors may prefer to invest in debt rather than in the equity of your company. In return for their investment, the debt is usually secured by some or all of the assets of the company and is traditionally structured as an installment note at a relatively healthy interest rate (most young companies do not borrow money at the same low rates as other companies). This gives the investor the comfort of being a full-fledged creditor, rather than a last-in-line shareholder if the company folds. Further, the investor's interest income comes off the top, rather than off the bottom, of the profit and loss statement. This is also a plus for many prospective investors because many small companies do not actually generate earnings, at least initially.

Revenue Sharing Notes
This is a new concept developed for small business financing. A revenue sharing note is structured as an unsecured note to pay back the principal given to the company by investors over a period of months or years. Like other debt offerings, the revenue sharing note positions an investor as a creditor rather than as a shareholder. As an extra incentive, the revenue sharing note also features an agreement by the company to pay to the investor a percentage of gross sales of the company, for as long as the note is outstanding. This percentage is over and above the principal payments.

Revenue Sharing Preferred Shares
These preferred shares work much like revenue sharing notes. Rather than a set percentage payment, the preferred dividend comes in the form of a percentage of gross profits of the company. This investment vehicle combines the revenue sharing aspects of the note with the equity position of preferred or convertible preferred shares.

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Article Tags: funding, investment, loans



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