When evaluating capital funding solutions, companies should ask the right questions. They should consider options for internal and external growth. Growth options may include de-risking the company, pulling money out of the company, or concentrating the net worth of the company into equity value. A proper capital strategy can make all of these choices. Here are some factors to consider:
Mezzanine loans
Mezzanine loans offer investors the security of a secure return on their investment. Unlike equity lenders, mezzanine investors are not at the mercy of the market and are less likely to lose money if a company goes bankrupt. In return for their investment, mezzanine lenders perform due diligence and typically look for a business with a track record of profitability and a detailed plan for use of the funds.
Mezzanine financing provides businesses with the capital they need to grow. This type of capital is patient and allows companies to maximize the value of their stock by increasing the returns on equity. Because mezzanine lenders provide capital abundance, mezzanine loans are a viable option for many middle market companies. A mezzanine loan is an excellent choice for growth-stage businesses. Whether your business needs to build a larger facility, complete acquisitions, or expand sales, mezzanine loans are a great option.
Lines of credit
Banks have long offered lines of credit to businesses, but many individuals aren’t as familiar with them. In fact, banks rarely advertise these lines of credit, and most people aren’t aware of their benefits. One of the most common uses of these lines is to make regular cash outlays for things such as weddings, which require large deposits. But lines of credit also have their disadvantages. Depending on the type of credit line you apply for, you might not be able to borrow as much as you need.
A line of credit allows you to borrow up to 85% of your accounts receivable, finished goods, and raw material inventory. This type of loan is great for small businesses that need extra cash, and the funds replenish themselves automatically. Plus, the amount of available funds increases with your business’s sales, so you never need to worry about running out of money. You can also use a line of credit in emergencies, or to make unexpected purchases when you need money quickly.
Debt financing
Debt financing is an excellent solution for a small business in need of capital. Unlike equity funding, which usually requires a pitch and lengthy paperwork, this type of capital is available in a short amount of time, sometimes even the same day. There are many advantages of debt financing over equity, including lower fees and faster turnaround. This article discusses the advantages and disadvantages of debt financing. A business that needs only a few hundred thousand dollars to start up should consider this option.
While pursuing debt financing, business owners should consider their tax consequences. While debt capital does not offer business owners a tax break, interest payments on the money are tax-deductible, so they lower the overall tax rate. Using debt financing for business startup funding can also help a business with its tax burden, because the interest paid on it is tax-deductible. Finally, debt financing is beneficial for businesses, as the business owner retains maximum ownership of the company.
