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SMALL AND MEDIUM BUSINESS TECHNIQUES TO RAISE DEBT OR EQUITY CAPITAL

Guest post by: Jayson Curuso

Article Overview: Debt financing, is the process of obtaining some for of a loan form relatives, friends or a financial institution. Foremost is to have you business plan in order and solid as possible, the vast majority of new and small start-up businesses are funded with debt financing via financial institutions or relatives.

SMALL AND MEDIUM BUSINESS TECHNIQUES TO RAISE DEBT OR EQUITY CAPITAL

Debt financing, is the process of obtaining some for of a loan form relatives, friends or a financial institution. Foremost is to have you business plan in order and solid as possible, the vast majority of new and small start-up businesses are funded with debt financing via financial institutions or relatives. If you pass muster, banks can provide you with a loan or line of credit that comes with a repayment schedule and an interest rate. Equity Financing; is when someone put up money in exchange for stock in the company, this can range from relatives, friends, Angel Investors and Venture capitalist Venture Capitalist are the lease likely to invest in expanding small business, they usually seek out companies with a proven track record and start around five million dollars, although some will consider companies in the one million dollar range if they have strong management and a great potential product or services. Lenders or equity investors will look carefully at your company’s cash flow, collateral and the liquidity of your assets. You must have a sensible, written business plan and or prospectus, and you must know your financial situation inside and out. Note that one way to increase your odds of success is to establish a relationship with your banker prior to your loan request another way is to show more assets on to your balance sheet (balance sheet enhancement). Larger companies have been using this technique for many years. There are many options to consider If you are raising equity funds, What is the structure of the offering, a Small Corporate Offering (SCORE) is a state by state regulated program that allows the raising of capital up to one million dollars per company in one year using a public offering, you can start by soliciting investors to raise your first $100,000 to $500,000. There is also a federal regulated program that is the same as the state regulated program. The federal regulated program will allow the raising of one million dollars for one company in one year. The difference in the state regulated and the federal regulated programs is that you are not restricted to one state and can solicit investors through out all the states using a properly prepared full disclose document (prospectus). The federal regulated program is called 504 Regulation D. Needless to say you will need to secure the services of an attorney or financial professional that are experience in writing public offering documents. What is the offering, convertible note, common stock, preferred stock? If it is their first round and they will be doing a very large round later, it should a convertible note. Investors prefer preferred stock, but it isn’t a definitive requirement. Is it clear how much capital they are seeking and how they will use it? It is not good to have 40% or so go to (working capital). Need to have a clear use of funds and plan of action. Is the amount being sought appropriate for their stage of company? Startup up to $1M, Early Stage up to $3M (beyond concept), and Emerging Growth (already raised millions and seeking next round) up to $5M…otherwise they need to go to institutional investors. Do they make it clear how an investor will get a return on their investment, the likely exit? If acquisition; do they use market examples of other companies like them that have been acquired? Conclusion: These are more advance techniques than small business owners are accustom to using. But like the services of any other professional, Attorney, Doctor, Accountant, Plummer, etc., there is nothing like the services and advice of an ethical financial professional. When seeking funding be prepared for set backs alone the way, if it was easy everyone will be doing it. Consider a baby’s first failure in life when it try’s to walk and the number of times it falls trying if it never tried and never fail, it would never walk. Without failures there is no learning curve but there is always a way to achieve that dream of owning your own business and you cannot fail unless you give up and stop dreaming.

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Article Tags: capital, funding, loans



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Re: SEEKING PRIVATE OR ANGEL INVESTOR - Definitely have a thorough and accurate business plan. In the US, you can get help at SCORE - their website is full of great information and you can check for local chapters. If you would like a book that has all kinds of great information about financing options - this one is very good --- HOW TO GET THE FINANCING FOR YOUR NEW SMALL BUSINESS: INNOVATIVE SOLUTIONS FROM THE EXPERTS WHO DO IT EVERY DAY—WITH CD-ROM This new book will provide you with a road map to securing the financing. The book goes into traditional financing methods and assists the reader in setting up proper financial statements and a proper business plan. It details the differences between debt and equity financing and how and why to use each. Valuation techniques are explained for determining what your business is truly worth. However, the book’s real strength is in explaining alternative and creative methods of financing, such as SBA financing, investor angels, IPOs, limited public offerings and venture capital. Essential resources for finding the detailed information you need are included throughout. Item # 9780910627559 $39.95 Shri
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