What is Small Business Financing?
Every small business faces the challenge of financing, not just in the starting stage but as the business begins to grow as well. Providing adequate cash flow is essential in the growth of a business and sometimes your own personal money may not be enough to cover all your expenses. Some people choose to wait until they have saved enough funds to finance a business. However, it is still possible to venture in a business even with a limited budget.
Generally, businesses who have achieved success in the market were not entirely funded by the owners themselves. These entrepreneurs have sought different ways of financing to raise the capital they need. Each method of business financing has its own limitations and not all methods would be suitable for all kinds of business.
One popular way of raising business capital is through private placement. This is usually done by seeking investors who are willing to invest in the business. In a survey conducted in 2002 by the Thompson Financial, it was reported that more than 416 billion businesses were given private placements. Small businesses usually seek this type of funding since obtaining a loan from commercial banks and large lending companies usually require an excellent business credit.
With a private placement, a business has only to submit a business plan and a private placement memorandum (PPM). The PPM will contain a detailed explanation about the business and the terms with regards to the money invested. Those who would like to obtain a private placement are also advised to be represented by an attorney.
Advantages of Private Placement
A small business applying for a private placement may obtain financial support ranging from 100 thousand dollars and above. Generally, it is much easier to raise money through a private placement compared with venture capital markets.
Who are considered as a qualified investor? A private placement investor can be an individual who’s yearly income amounts to $200,000; a family who’s combined yearly earnings amount to $300,000, banks and other financing institutions.
If you’re just in the starting stage of opening a business, it may be necessary to get a number of angel investors to gather sufficient funding. To make this happen, you need to set appointments with your prospective investors to convince them to put in their money in your business and to make the necessary arrangements.
For businesses who have already established a name in the market, seeking investors wouldn’t be as difficult. Since they already have a track record, it would be easier to find investors who will support the business. Small businesses who want to expand their market will benefit greatly from a private placement.
Whether you’re just starting up or are planning to expand your business, explore all your options first before choosing the best means of financing that suits your needs. Private placement financing is just one possible option you can consider but there are many other ways of raising a business capital that you can also research on.
Irish Taylor is a bussiness loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.
Copyright 2008.
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