Finding capital funding for a new business or to grow an existing business can be a daunting job, but growth and progress often go hand in hand. As the nation works to shake off the effects of the recession, businesses are scrambling for positions at the front of the pack. Commercial lenders and venture capital firms alike stand to benefit from the rise in demand for capital.
These are some of the most common sources of money for business start-ups and expansions:
- Accounts Receivable Funding — Companies in service industries who have few physical assets are the usual candidates. The loan is based on accounts receivable volume and quality.
- Bank Loans — Of the traditional variety and based on standard, predictable credit guidelines, including business credit history, owner credit history, historical revenue and expense trends, debt to equity ratios, and owner’s net worth and personal guarantees.
- Acquisition Financing — Allow one business to purchase another, when the company making the purchase has sufficient debt to equity to guarantee repayment of the loan.
- Angel Investors — A type of investor funding, so called because they often represent the last resort when no other funding source will take the risk. Angel investors typically provide capital funding from their own personal wealth. Most investments are under $50,000. Their lending standards are usually not as rigid as banks or venture capital companies.
- Venture Capital — Venture capital is a type of investment capital where the investor essentially buys into a company, infusing the company with cash in exchange for an ownership interest. The venture capitalist may insist on a management roll in the business, and often expects high returns from his investment. In other words, venture capital might be available where traditional commercial loans are not possible, but the venture capital costs more in terms of interest and shared business control.
If you are in the market for capital funding, or considering becoming an angel investor or venture capitalist, be sure to seek the advice of experienced legal counsel before you sign any contract. The attorneys at Glass & Goldberg are committed to helping you minimize risk and manage uncertainty before, during, and after the deal, and can help structure your transaction to meet your goals.
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