GROW YOUR MARKET SHARE
Growing your business can be much easier than starting up depending on your existing business ratios of equity and debt. For those that have high equity and low debt ratios local bankers will feel less risk in light of your business balance sheets. For those that do not meet that criteria the government and the small business administration will provide loan guarantees to lending banks in order to decrease the bank risks and promote lending, there are many seasonal and disaster loans that account other difficult situations faced by established businesses. Private equity lenders and even lending clubs or crowd-funders will lend to riskier nosiness models so long as they have profit potential, however if you are over leveraged in high debt and low equity then your financing options will become extremely limited.
Let's look at growth financing options. . .
Secured loans with monthly payments of principal + Interest from banks and government backed lending institutions. Savings and loans local banks and credit unions can cater to smaller communities with local borrowing needs while commercial lenders can address regional ventures and national banks deal with inter-state commerce ideas. Regardless of the business footprint they all have similar lending requirements for their products like short-term loans usually 3-12 months, single purpose loans, seasonal loans known as fast and famine that are backed by the government small business administration. These lenders require good credit worthiness and scoring, business book auditing to prove the ability to repay the principal monthly with interest . The lenders carry the risk of defaults so approval procedures vary depending on many variables including tough business reviews that include auditing of financial statements for the last 2 years to understand your cash flow, profit and loss. In order to help secure the expansion capital you may be required to use your business assets as collateral at a lower assessed value, you may be required to place personal guarantees and liability using your home or other personal wealth including anywhere between 40-60% of your own cash.
Long Term longs with no monthly payments or interest but equity ownership and control of the business assets and profits is shared. There are over one thousand venture capital firms and private equity growth investors with unlimited capital like Sequoia and KPCB who are the top 2 firms in the industry. As we covered last week VCs are used to start new business or grow and expand your market share. The rules are significantly different and include limits on how much debt to equity a company has which should be no greater than 4X so that the company is not over-leveraged the Growth Capital firm Gains Equity & Control while allowing the business much Longer Terms anywhere between 4-6 Years and disbursing the loans into multi-round disbursements like ( Start phase, Early phase, Growth phase, and Late phase ) the investors can demand cash or convert their equity on exit by forcing a sale or liquidation of the business. Because the firms have such power they demand the businesses have high valuations and they must be able to show capitalization potential by both the business model and the market as well as high levels of executive management commitment to optimize for profit and find cost efficiencies.
DEBT FINANCING
Secured loans with monthly payments of principal + Interest from banks and government backed lending institutions. Savings and loans local banks and credit unions can cater to smaller communities with local borrowing needs while commercial lenders can address regional ventures and national banks deal with inter-state commerce ideas. Regardless of the business footprint they all have similar lending requirements for their products like short-term loans usually 3-12 months, single purpose loans, seasonal loans known as fast and famine that are backed by the government small business administration. These lenders require good credit worthiness and scoring, business book auditing to prove the ability to repay the principal monthly with interest . The lenders carry the risk of defaults so approval procedures vary depending on many variables including tough business reviews that include auditing of financial statements for the last 2 years to understand your cash flow, profit and loss. In order to help secure the expansion capital you may be required to use your business assets as collateral at a lower assessed value, you may be required to place personal guarantees and liability using your home or other personal wealth including anywhere between 40-60% of your own cash.
EQUITY FINANCING
Long Term longs with no monthly payments or interest but equity ownership and control of the business assets and profits is shared. There are over one thousand venture capital firms and private equity growth investors with unlimited capital like Sequoia and KPCB who are the top 2 firms in the industry. As we covered last week VCs are used to start new business or grow and expand your market share. The rules are significantly different and include limits on how much debt to equity a company has which should be no greater than 4X so that the company is not over-leveraged the Growth Capital firm Gains Equity & Control while allowing the business much Longer Terms anywhere between 4-6 Years and disbursing the loans into multi-round disbursements like ( Start phase, Early phase, Growth phase, and Late phase ) the investors can demand cash or convert their equity on exit by forcing a sale or liquidation of the business. Because the firms have such power they demand the businesses have high valuations and they must be able to show capitalization potential by both the business model and the market as well as high levels of executive management commitment to optimize for profit and find cost efficiencies.
