|
Subordinated
Debt (also called Mezzanine Financing)
This is an
unsecured loan (i.e., it is not backed by collateral). Therefore, the claims of
this lender are behind those of the banks or other asset-based lenders. Of
course, this debt comes at a higher interest rate. In addition, warrants (the
right to purchase stock in the future at a set price) for a minority position in
the company are typically also part of the deal. The effective cost of interest
and warrants for mezzanine financing will likely total over 20 percent annually.
The cash interest payments will usually equal half to two-thirds of this total
expected cost. Since the subordinated debt holder will want the ability to cash
out of the transaction at a known time, the debt will need to be repaid at a
specific term (say 5 years). At that time, the stock warrants will usually be
"put" (i.e., a forced sale) back to the company based upon a valuation
of the company at the point of buyback.
5.Equity
Financing
This is simply
selling stock. In the first round, so-called "angel" investors will
often be involved. Angels are often individuals. As additional money is needed,
private equity funds or venture capitalists may be interested. Because many of
their deals turn out poorly, venture capitalists will be looking for returns in
the range of 30 to 60 percent annually. Consequently, you will need documented
plans that support big opportunities. In working with stock sales, your
ownership percentage will be significantly diluted, and you will need to give up
portions of the control of business decisions.
Although the stock
being sold will not have a specific term, these investors will want to know how
they will convert their stock back into cash. Without an "exit",
private equity funds and other investors will not be interested in your company.
This will require you to have a long-term plan that is credible.
6.
"Vulture capitalists".
In the early
1990’s, some teasingly called venture capitalists "vulture
capitalists". This is due to the significant ownership interest sought for
seemingly small amounts of capital. This would translate into a lower overall
valuation of the company. Similarities exist today. Too many entrepreneurs are
not prepared for this valuation discussion and potentially give up equity that
is not warranted. To avoid be lumped in with everyone else, you need to have
creative strategies to Raise money for your business. Note that you cannot
accurately calculate the value as to what your business and its intellectual
property are worth.
There are other
conventional methods of raising money, which you will definitely find difficult
to apply especially at the beginning of your business, and because of the need
to protect your business plan and its intellectual property
To protect your
Business ideas, business Life and its intellectual property, you must apply
strategies to raise money that will not put more pressure of Interest on your
neck. Strategies that can make you to keep loan for as long as you want. Then
get “Proven Strategies To Raise Money for small & Medium Businesses
To achieve
this, obtain strategies that you can easily used whether you are a one
man owner Business, self employ Business, small and medium
Business proper, “Proven Strategies To Raise Money for small
& Medium Businesses can be used easily
for any type of business without the stress
associated with the old
system of raising money The appraisal’s cost will almost always be
more than repaid by being able to negotiate a better deal.
Let us consider
some of these proven strategies that are being used by successful entrepreneurs
and individual:
Click here to continue
|