How can our business find legitimate sources for expansion capital?
We operate two businesses, and are bi-coastal. We want to purchase work/life spaces, update our equipment and finishing materials, and pay for advertising. What legitimate sources are there for expansion capital?
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According to my practice, I have two or three unique ideas which are following:
1-sale 10% share of your business.
2-Request to your permanent client to give you some little amount of money for calculated time duration.
3-Posts request on social network for sleeping partner.
All of the answers here contain good information and suggest legitimate sources of raising capital. However, to determine which approach is best for your business you need to evaluate your business and personal needs and goals and the direction you want your business to go. This will give you an idea of which route is the best to take.
Generally speaking, if you want to operate your business independently long term you should either self-fund or use debt financing.
If you have plans to sell grow your business rapidly and sell it in a relatively short period of time (less than 10 years), then the equity types of investment previously discussed is probably your best approach.
You will (generally) be able to raise less capital using the first option, but it will cost you less. If you decide to sell equity you will likely be able to raise more capital, but it comes with many more strings. You will also give up some degree of control over your business and will definitely give up control of the long term direction of your business.
Equity investors invest money in order to build value and then turn that back into cash. Whereas banks are content to just earn an interest rate.
The first part is to know how much you want and what the return on investment will be once you get the amount you are looking for. This will frame how much you can pay for an infusion of cash. The cost of capital can range from a low of 3-4% for a bank loan all the way up to a large percentage of the company for an equity investment. (Or if you raise funds through a donation campaign, the cost of capital will just be the cost of income taxes on what you receive.) The more your business has going for it, the less its cost of capital will be and the more options you will have.
The second part is knowing what your business has to offer. This could be such things as length of time in business, years of consistent profits , a strong customer base, good credit, and collateral. Recent credit scores for the business, the personal credit scores of the owners, and the percentage of debt the business currently carries should be known. If you put yourself in the shoes of lenders or investors, what would you be concerned about when providing expansion capital to your business? Make sure you can completely answer these concerns. By answering these questions, you should be able to generally determine if cash used for your expansion would be considered low risk or higher risk by sources of capital. The lowest risk would be something to approach a bank about, the highest, an investor. In between, there are a variety of non-bank lenders with progressively higher rates depending on the perceived risk.
Finally, know who you are working with. There are a wide variety of scammers looking for easy money who are guided purely by their own self-interests. Someone found on an internet search with a too good to be true offer should be carefully vetted before trusting him or her with your financial and personal information.
I just bought a new branch office and i was foolish enough to go through the SBA. If you can at all use a commercial bank do so without having to sell your soul to the devil. It was a 9 month ordeal that costed me $20,000 to borrow $100,000 along with fees for their "partner's" services all to get a loan that was 3.5% over prime.
U need a business plan and assets...Great credit score,,, Then talk to SCORE
I have done 2 crowdfunding campaigns that worked out very well for my clients. Indiegogo.com and Kickstarter.com are good ways to get your business name out to the public and potential investors/donators.
Thank you, Rory! I tried crowdfunding,early on and found that this is not my area of expertise. Therefore, we would have to hire someone. We operate two businesses, a radio program and a high-end furniture finishing and restoration, very opposite industries.
From your question it sounds like you are doing well. Congratulations.
I find that most entrepreneurs think solely of the private equity route when it comes to expansion capital and neglect the other approaches that are available to them. Each will have their own pros and cons and the route you select will be that approach which best meets your needs at the present and near future.
Broadly thinking there are three sources of funding for a company:
1. Equity, which you raise from savings, family and friends, and investors, whether crowd-funding (a web search will find many sites for you), PE investors or some other source;
2. Debt, ie a loan of some sort, whether sourced from a bank or through a P2P; and
3. Retained earnings, which might be a bit slow for you based on your desire for "expansion capital".
I wish you well.