Getting a business cash advance is simple and easy for most small businesses, and even those who have poor credit scores. While this does not apply to bank loans, these are the requirements of private lenders, and private lenders are amongst the leading funders at this time.

Most business owners who are looking for funding and are unaware of the current requirements and developments of the financial sector, visit their local bank. This is the way people believe a loan is to be obtained, via the bank. However, banks are not very enthusiastic about funding small business, and as a result a whole new industry has cropped up to meet the demand.

Private lenders often fill the gap between businesses and banks. There is the very large segment of small businesses that are stuck in the middle, who don’t qualify for bank loans and yet require financing. Private lenders fill this gap providing many of them with the much required business cash advance in the USA.

The services provided by private lenders

The funding that private lenders provide is typically known as MCA or merchant cash advance loans. These kinds of loans are short term loans that are for a maximum duration of 12 months. The repayment options are easy and flexible, and small business owners can work with the funder to set the method that most suits their requirements.

The application process to apply for a business cash advance is simple and quick, with the private funder generally requiring basic information, and a lot less than those of banks. The basic information required by private lenders to provide an MCA are as mentioned here.

1. How old the business is

2. The gross monthly sale of the business

3. How much they require

4. Purpose of the funds i.e. working capital, business expansion, purchasing inventory, purchasing equipment etc.

5. If the business owner has other loans and if he or she is in bankruptcy.

These are some of the basic types of questions that a small business owner who is applying for an MCA would need to answer. The outstanding difference between an application for an MCA and bank loans is the fact that banks require detailed information related to financial statements. Private lenders basically need a broad picture of the ground realities of the business applying for the loan. Unlike banks all decisions are not based on the statements of the small business.

While banks and private lenders may have a different way of looking at things, private lenders do take care to ensure the ground realities of the small business are as they should be. Banks rely heavily on financial statements when reaching a conclusion related to funding a business.

Features of the MCA loan application process

While it is possible that you will be asked about your credit score even when you are going to apply for private funding. The credit score is not a determining factor for an MCA. These loans are unsecured loans and as a result collateral and security are not required as well.

When credit scores, collateral and securities are not holding back small businesses, the possibility of getting funded is a lot higher. These are the basic weak areas of most small businesses, which hamper their ability to get funded by in large. When these weak areas are removed from between a small business owner and the funding they seek, the process becomes a lot smoother for them.

Collateral is something that most small business owners find difficult to show. Typically, only with a private lender can a small business owner expect to receive a business cash advance with bad credit.

Another great feature is the fact that small business owners can receive the funding they require very quickly as well. The quickest a business owner can receive the money in their business account is 48 to 72 hours, from the time they submit a complete application. At the latest this time frame would be a week or two. Banks on the other hand are in no particular hurry to provide business funding, and a realistic time frame would be a couple of months to receive the money.

In understanding the difference between domestic and offshore mutual funds, it is important to know what these funds are. It is true that there are a number of different mutual funds that are available to investors, but the basic construction of a mutual fund is that it is created by a firm that takes the money of many investors and invests that money into stocks, short-term money markets, bonds, and other types of securities. It is then that the manager of the portfolio manages that money by investing and trading the underlying securities of that fund. What happens is that capital gains or losses are realized and those gains and losses are then passed to each individual investor.

The United States and Canada have mutual funds that operate in a similar manner. These funds are open-end funds, closed-end funds, and unit investment trusts. Those investing in offshore mutual funds may find that the term is used more broadly. It is used to refer to any type of collective investment. The names that the investor may see these referred by include open-ended investment companies, unit trusts, undertakings for collective investments in transferable securities, and unitized insurance funds. That may seem like a lot to swallow, but many investors find that their offshore mutual fund investment opportunities are not as restricted because there are more types of mutual funds to invest in.

The offshore mutual fund

There are tax advantages to the offshore mutual fund that individuals will not find with their domestic mutual funds. Unless one of the rare loopholes is found, United States residents will still be fully taxed on their offshore mutual fund. This is usually referred to as “foreign arising income” on IRS tax forms. Nevertheless, individuals have found that investor-friendly countries allow savings on investments through tax incentives. Some offshore locations, such as the Virgin Islands, do not require tax to be paid. This allows the portion of the gain that would normally go to tax to be reinvested.

There are certain organizations that argue that allowing no tax to be paid or reducing the amount of tax is a form of legalized tax evasion. However, tax incentives are a way for individuals to invest into that economy, making that economy even stronger.

But what one will find is that there is a high degree of regulation when it comes to offshore mutual funds. One may find that there may be a minimum investment of $100,000 and that an individual is required to identify him or herself as a “professional investor.” In the U.S., Canada, and various other countries around the world, a person does not have to be a professional investor to invest in mutual funds. They have brokers who can take care of that for them and guide them through the process or simply take care of 100% of the account transactions.

There may also be instances in which the number of investors is limited because of stipulations set forth in constitutional documents. It is these types of regulations that can limit the number of foreign investors in mutual funds, but they can prove to be quite profitable.

The differences

So as you can see, there are differences between domestic mutual funds and offshore mutual funds. Offshore mutual funds can be a fantastic investment for the investor once the hurdles are cleared. Domestic mutual funds may be easier to invest in, but an individual may find that the return on their investment is not as high. However, many prefer their domestic mutual funds over the confusion that surrounds offshore mutual funds. Nevertheless, many find that the confusion is worth it and that the process becomes easier for them over time.

Innovative Capitalization: Pondering Policy Implications of the Public Private Partnership Model

One of the most innovative funding strategies is the Public-Private Partnership (P3) model. The Public-Private Partnership is quickly becoming the future for most infrastructure projects. The Public-Private Partnership is a contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through the derivative agreement, the skills and assets of each sector (public and private) are shared in delivering goods, services or facilities for the use of the general public efficiently and effectively. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the good, service or facility. Given current government fiscal and budget crises, viable funding options are being evaluated for building and renovating infrastructures using small amounts of money from governments or non-governmental organizations. Often, the Public-Private Partnership can be the solution to financing problems, completion of jobs and investing in large projects without sacrificing the government limited financial resources. There is significant and growing empirical evidence that Public-Private Partnership projects come in substantially lower than their initial estimated cost making them very attractive and preferred funding option for many organizations.

The assistance of competent financial advisers may be required. Often, financial advisers’ executive portfolio includes designing and deploying sound financial accounting system with strong internal controls. Further, they may assist in formulating company-wide financial objectives, policies, procedures, and processes to assure all stakeholders of a continuously sound and transparent financial accounting structure.

Moreover, financial advisers may design and execute fraud detection and mitigation strategies. Their assignments may deal with key aspects of fraud examination including fraud detection, deterrence and prevention, internal controls, auditing and investigation techniques, pertinent law and evidence, and fraud schemes involving business-to-business, corporate and personal financing, financial institutions, healthcare, insurance, intellectual property, and securities.

Finally, financial advisers employ managerial economic techniques to mitigate moral hazards and adverse selection for insurance and re-insurance portfolios and corporate clients. Drawing on strategic linkages to pertinent aspects of interdisciplinary competencies in managerial (cost) accounting, managerial economics, managerial finance, business methods, information technology, criminal justice, and law enforcement they formulate appropriate corporate financial management strategies that mitigate financial loss, protect and preserve financial assets.

However, what keeps financial advisers awake at night and occupy most of their professional time are not the objectives of internal control-assuring achievement of an organization’s objectives in operational efficiency and effectiveness, reliable financial reporting, and compliance with pertinent laws, regulations and policies or elements of internal control-control environment, risk assessment, control activities, information and communication, and monitoring but identifying appropriate sources of funds for the enterprise and corporate clients particularly governments and non-governmental organizations.

There are several types of Public-Private Partnerships, depending on the needs, options available and the size of the project being considered. Based on available meta-data and meta-analysis, the most suited public projects to be executed using Public-Private Partnerships are power generator projects and infrastructure projects. The most frequently used formats are: Traditional-Under this funding strategy, the public component of the partnership acts as a contracting officer; look for funding, and has the overall control over the project and its assets; Operation and Maintenance-Under this funding strategy, the private component of the partnership operates and maintains the installation of the project, while the public agency acts as the owner of the project; Design and Build-Under this funding strategy, the private partner designs and builds the facility; while the public partner provides the funds for the project, and has control over the possession and assets generated by the project; Design-Build-Operate-Under this funding strategy, the private partner designs, builds, and operates the facility or project. The public partner acts as the owner of the installation and gets the fund for construction and operation; Design-Build-Finance-Operate-Under this funding strategy, the private sector provides finance, design, build, possess and operates the project, while the public partner only provides funding while the project is being used or active; Design-Build-Operate-Transfer-Under this funding strategy, the private partner designs, builds, and operates, for a limited time the project, and after that specific period of time, the facility is transferred to the public partner.

Others include, Build-Transfer-Operate-Under this funding strategy, the private partner builds and transfers the project to the corresponding public partner. Afterward, the public partner chooses to lease the operation of the facility to the private sector, under a long-term leasing agreement; Build-Own-Operate-Transfer-Under this funding strategy, the public partner builds, possess and operate the project for a limited time, until some time when the installation is transferred, free of charge, including ownership to the private agency; Lease-Under this funding strategy, the public owner leases the facility to a private firm. The private company must operate and will provide maintenance for the facility per specified terms, including additions or remodeling process; Concession-Under this funding strategy, the public agency will be partnering with a private company, conceding all exclusive rights to operate, maintain for a specific period of time, under specific contract terms. The public partner will have the power over the ownership, but the private partner will possess owner rights over any addition incurred while being operated under its domain; Divestiture-Under this funding strategy, the public partner will make a complete or partial transference of the installation to the private sector. The government might include specific clauses in the sales agreement requiring investment and modernizations on the facility, and continuation of the services being provided.

As in all business decisions, there are costs and benefits associated with all capitalization strategies. Financial advisers assist their clients to isolate and weigh the costs and benefits of each funding strategy. And recommend the funding option that provides the maximum net benefit pursuant to the stipulated evaluation criteria. In the next article we will examine some keys to successful Public-Private Partnerships considered as best industry practices.

Finding money can be one of the biggest hurdles for a small business owner. Whether you desire to open a chain of restaurants or an Internet-only business, capital is required to fund your dreams. Here we will explore the different types of funding available to you:

Debt financing includes any money you will pay back. It does not require you to give up equity in your company and can be a good choice for entrepreneurs who have not been able to attract the attention of investors. This type of financing usually requires personal collateral and will require you to pay interest.

• Loans – Loans are available from a variety of sources, including local banks, the Small Business Administration and non-profits. Requirements vary, but they are usually credit-based and will require you to pay interest. Some economic development organization microloans may take into account character as well.

Equity financing requires you to give up a portion of your ownership to investors in exchange for their money.

• Friends and Family – For most business owners, this is the first stop when looking for funding. Your friends and family members know your character, and the process to get money is usually much shorter than other methods. Even better, most will not request a stake in your business in exchange for funding. Even though you know these lenders personally, make sure you get all agreements in writing.
• Angel Investors – These are high-worth individuals or groups of people who exchange their industry expertise for a portion of your company’s equity. These investors can be hard to find, and some only focus on certain sectors. An Internet search may uncover the angel investors in your industry.
• Venture Capitalists – These companies are usually interested in established companies or start-ups that will quickly be poised for sale or public offering. There are usually high standards for receiving this type of funding, and you must be willing to give up a portion of your control.

Other types of funding:

• Business Plan Competitions – Many are run by local business schools and require you to partner with at least one student to enter the competition. Winning could mean networking opportunities, funding and ongoing support.
• Government Grants – Though it is a popular belief that the federal government provides small business grants, money that you do not have to pay back, it is not entirely true. Most grants go to local non-profits that help start-ups rather than the businesses themselves. Some states do, however, provide grants for special industries, such as technology and “green” sectors. Check your state’s requirements for more information.

As you can see, there are a variety of ways to get financing for your start-up. An accountant or financial manager can help you decide which type of funding would be best for you. For more information on business financing, including sample promissory notes that can be used for family and friend loans, visit SCORE: http://www.score.org.

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This article, by Dequiana Brooks, was originally published in Gemini Magazine.

What is an Alternative Investment Fund (AIF)

AIF is an Alternative Investment Fund Regulations privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors. AIF may be in the form of a trust or a company or a limited liability partnership or a body corporate.

Why AIF

AIF Regulations endeavor to extend the perimeter of regulation to unregulated funds with a view to ensuring systemic stability, increasing market efficiency, encouraging the formation of new capital and consumer protection.

Who are not covered

Currently, the AIF Regulations do not apply to mutual funds, collective investment schemes, family trusts, ESOP and other employee welfare trusts, holding companies, special purpose vehicles, funds managed by securitisation or reconstruction companies and any such pool of funds which is directly regulated by any other regulator in India.

Categories of AIFs

An AIF needs to seek registration broadly under one of the 3 categories –

Category I AIF: The following are covered under Category I

1. Funds investing in start-up or early stage ventures or social ventures or SMEs or infrastructure

2. Other sectors or areas which the government or regulators consider as socially or economically desirable including the Venture Capital Funds

3. AIFs with positive spillover effects on the economy, for which certain incentives or concessions might be considered by SEBI or Government of India or other regulators in India

Category II AIF: The following are covered under Category II

1. AIFs for which no specific incentives or concessions are given by the government or any other Regulator

2. Which shall not undertake leverage other than to meet day-to-day operational requirements as permitted in these Regulations

3. Which shall include Private Equity Funds, Debt Funds, Fund of Funds and such other funds that are not classified as category I or III

Category III AIF: The following get covered under Category III

1. The AIFs including hedge funds which trade with a view to making short term returns;

2. Which employ diverse or complex trading strategies

3. Which may employ leverage including through investment in listed or unlisted derivatives

Applicability of AIF Regulations to Real Estate Funds

After knowing what an AIF is and its broad categories, we analyse whether AIF Regulations are applicable to the Real Estate Funds

Firstly AIF has to seek registration under AIF Regulations under one of the three categories stated above. Therefore if a Fund does not fall under any of the three categories stated above, then it will not seek the registration with SEBI.

If we look at the Category 1, registration is required by funds which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure

If we look at the definition of infrastructure, Explanation to Regulation 2 (m) states that Infrastructure shall be as defined by the Government of India from time to time.

And in the normal parlance, the term typically refers to the technical structures that support a society, such as roads, water supply, sewers, electrical grids,

telecommunications, and so forth, and can be defined as “the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions.

Therefore infrastructure does not include the real estate or construction activity since this activity deals in investing in land, developing the land by way of construction of flats, townships and other residential and commercial projects.

But if the real estate fund carries on certain projects for a social purpose like purchasing land for charity etc.; then the fund may be covered under social venture funds.

The clause further states that ‘or other sectors or areas which the government or regulators consider as socially or economically desirable and such other Alternative Investment Funds as may be specified;’

The AIF Regulations have been notified just a few days back and till date, no other AIF funds have been specified in the Category 1 by the Government. Further what the government or regulators consider as socially and economically viable is a very broad concept. However, till the Government specifically comes out with specific inclusions under Category 1; a Real Estate Fund will not be covered under Category 1 and therefore would not require Registration.

Further, the clause also states that – Alternative Investment Funds which are generally perceived to have positive spillover effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions will bee included

By adding these lines to the Category 1, SEBI has made the category 1 very vague and open to dispute and litigations since what SEBI intends with positive spillover effects on the economy is not defined or clarified. Different people or organizations may have a different opinion on this which would lead to unnecessary litigations and hardships to business owners. However, till any clarity comes on this, the business owners need to take a cautious approach to the decision of seeking Registration under AIF Regulations.

Category II AIF

Now we examine whether a Real Estate Fund falls under the Category II AIF

If we look at the funds covered by Category II above, they

1. Shall not fall in Category I and III

2. Shall not undertake leverage or borrowing other than to meet day-to- day operational requirements and as permitted by these regulations;

3. Shall be funded such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator

For Real Estate Fund under Category I, we notice that at present it does not fall under Category I and it also does not fall under Category III since these are basically hedge funds. Further, no specific incentives or concessions are given by the Government to the Real Estate Sector. Therefore if we look at the applicability of Real Estate Fund under Category II, these funds may fall under the Category II AIFs if they do not take leverage or borrowing except for short-term requirements.

Impact of AIF on the Real Estate Funds

Under these Regulations, the minimum investment amount has to be Rs 1 crore from each investor. Therefore attracting the funds from the investors would become tough for the real estate funds, who used to raise amounts as less as INR 1 million from the investors. Now they would need to find high-value investors though this is not the only challenge that lies ahead for those raising domestic corpuses. They now also have to invest 2.5% of the corpus or Rs 5 crore, whichever is lower, to ensure that the managing company’s risk is aligned with that of the investor. Moreover, a single investment in a company or a project cannot exceed 25% of the entire corpus.

Further a Real Estate Fund registered in the form of an LLP also would be covered under the AIF Regulations. In an LLP Structure, since the investors are also partners, the risk to the rights of the investors being misused is very minimum. Therefore applying the AIF Regulations to the LLP Structure would reduce the flexibility available to such a Structure.

Conclusion

If we look at the AIF Regulations from a short term perspective, in light of the difficult fund raising environment today, the higher ticket size for investors could potentially throw up some challenges and could in a manner constrict the growth of the asset class, but clearly, in the long run, these regulations appear to have an element of maturity to play a pivotal role in the development and shaping up of the future of alternate asset class in India. It is also clear that alternative investments are more sophisticated and risky as compared to investments in equity and debt and till market matures it is advisable that only HNIs and well informed investors make an investment in this asset class and once the market matures it is made open to all. In the long run, we may see more investments in the Alternative asset class (in terms of quantum and maturity) due to the increased investor confidence in these funds.

The Challenge: Traditional Bank Lenders usually don’t like funding businesses during periods of variable cash flow or unpredictable collateral – e.g., periods of very high business growth, or on the flip side, reduced operating performance.

The Solution: Non-Bank (Alternative) Lenders specializing in asset based lending or those that provide short term bridge loans can often look beyond the turbulence of a transitional period to fill a company’s funding needs until the business is able to return to a traditional lending relationship.

Key Considerations for Borrowers:

• Cash is King: Focus on the cash availability and debt service of the alternative loan, not the interest rate
• Do the Rewards Outweigh the Cost of Capital?: If the benefit of the taking on the new business is greater than the cost of the capital, high interest rates may be well worth it
• Plan Your Exit: Develop a clear plan at the outset to move back to a bank from an alternative capital source

Bank Lenders don’t like lending money to businesses when cash flow and/or collateral is in flux, for example:

• Example A: A business goes through a heavy growth spurt causing either a significant inventory buildup that requires additional working capital financing, or creating a period with uncertain future cash flows and perhaps inadequate collateral coverage depending on the cash conversion cycle; or
• Example B: A business experiences a difficult operating period due to, for example, an operational restructuring, a sales force realignment or miscalculating the scope of a major project- creating negative cash flows or earnings

In such circumstance like these, a bank lender may reduce available funds (e.g., increase the reserve in a borrowing base or carve out specific collateral), ask for additional collateral or simply ask the company to find another lender.

Non-Bank Lenders are often willing to look beyond the turbulence of a transitional period to understand and structure around the real risks in order to get comfortable providing the necessary capital

Alternative lenders are structured to lend into periods of uncertainty – they usually have greater flexibility to tailor their loans to:

• Provide additional growth capital during periods of rapid expansion, not penalizing a business for investing as may traditional lenders

• Fund a business in the early stages of a demonstrated turnaround, much earlier than when a traditional lender would lend

Alternative lenders also provide more flexible terms (cash debt service, amortization, loan maturity, covenants) and cash availability than do traditional lenders, and for this they charge higher interest rates.

Key Considerations when Borrowing from a Non-Bank (Alternative) Lender:

Businesses turn to non-bank or alternative lenders when traditional lenders won’t provide the needed capital or bank terms are too restrictive. Here are several key considerations when evaluating an alternative loan:

• Cash matters most so focus on required cash debt service (principal and interest), not the loan’s interest rate
• Often the total debt service for an alternative loan at a higher interest rate will be lower than the total debt service of a traditional bank loan because of much lower principal payments
• If the benefit of taking on the new business exceeds the cost of borrowing, high interest rates may be worth every penny
• Have a realistic plan for moving back to a traditional lender before you take on a bridge loan
• Make sure the loan will provide a cash cushion if the transition takes longer, or costs more, than expected
• Ask yourself – does the lender understand my company and appreciate me as a customer? The answer should always be yes. If it’s not, find a lender that does

While it’s true that some businesses have a much easier time obtaining the funding they need than others, there are still a variety of options available, and it really doesn’t have to be difficult at all for you to obtain the money you need, no matter what your credit is like and what kind of business you run. There really are some easy to get business loans out there, although they might not all be the traditional, conventional kind.

Before applying for any loan or other type of financing, such as a credit card, you must first consider your company’s needs. Make an outline of what you’ll be using the money for and how much you think you’ll need. Read reviews on different lenders to learn about their application requirements, speed of approval and funding, acceptance rate, costs, repayment terms, and minimum qualifications. Some online lenders are probably going to be more lenient towards your credit score compared to traditional bank lenders. If you understand the minimum qualifications and likelihood of approval, you’ll know which lenders you shouldn’t waste your time on.

You’ll save a lot of time, hassle, and maybe even money as long as you identify the easy to get business loans beforehand and then focus on getting the documentation ready and preparing for the application process.

Good Credit Score Helps With Easy to Get Business Loans

Now, if you already are in good standing with your current bank or credit union and have a decent credit score, you might really want to first try with them if you haven’t already done so. You might be able to get a better deal with a financial organization with whom you already have a good, existing relationship.

Not all easy to get business loans are ideal – especially if you do not to share ownership of your company. If you come across the term “equity financing”, when searching for loans, note that this refers to money in exchange for shares. This doesn’t mean that you have to give up the entire ownership of your company, though, and can actually be an ideal solution for a start-up company or a company that needs to raise additional equity capital to help offset an existing debt.

If your business is already established and you are hoping to expand, you’ll first have to show that it is profitable to be eligible for financing. If you are experiencing financial difficulties, you might have to put up some kind of collateral, even for easy to get business loans.

Since no two business are 100% alike, the ” easy to get business loans ” for others might not be the same for you. However, if there is one company you should really look into, it is US Business Funding, as it has a 95% approval rate and minimal paperwork. A couple of other options include Kabbage, Funbox, and OnDeck Capital.

Have you ever thought of or come across what you believe to be the right internet business opportunity but you don’t have start-up capital and enough money to stay afloat until you start making a profit?

There are several options which are open to you to get that start-up capital. Here are three of these options, bearing in mind the costs of repayment and timeliness.

(1) Loans from banks

Many banks do not do personal loans for business purposes. They may also be unwilling to offer a business loan for what they would undoubtedly consider a risky project. Read their terms and conditions carefully, paying particular attention of term of the loan and interest rates. Also answer all questions as honestly as you can.

Another option is to secure the loan on your home if you have one. You should think carefully about doing this, as you may risk losing your home if you fail to keep up with repayments.

If you have spotted that business opportunity and you are itching to start but do not have the funds, all is not lost. You just need to be very careful you do not overextend yourself, put you and your family at risk, alienate your friends and family or risk losing your home as you chase your dream.

(2) Loan from friends and family

This is a quick way to get funds required to start your business. However, it is important that you are totally honest in letting them know what the money is for.

If they know it is for you to start a network marketing business, they may not want to lend you the money due to the low success rate in the industry as a whole. On the other hand, they may lend you with the expectation that the risk exists you may not pay them any time soon. Thirdly, they may opt to give you the money instead, with a caveat to repay only if you re successful.

Their decision may be influenced by how much you require. Bear in mind that there is a significant risk of alienating your friends and family if you do not manage your finances appropriately causing you to default on your repayment or failing in the business.

(3) Get funding from investors

This is another option which you can tap on without borrowing from banks or friends and family. You may need to draft up a business proposal for the investors to evaluate the viability of the internet business. Usually there may be some benefits for the investors, in terms of higher returns or equity shares in the business. You can try at i buy lounge.com to post your ideas.

(4) Save Up for the opportunity

This is the least risky way of obtaining start-up and working capital. You will have pressure to succeed but not as much as you would if you had to repay a creditor. The downside to this option is that it may take you a while to save up. Would the delay make the opportunity less attractive in terms of profit potential? Would the market be saturated before you enroll? You need to do thorough research to establish this.

There are many ways to try to get funding for your business. You can use credit cards, get a traditional loan, take out equity from your house, or use crowdfunding. Crowdfunding is a great opportunity for many businesses, but how do you know it’s the right thing for your business idea?

Do You Have a Good Plan? – You need a very solid business plan to set up a crowdfunding campaign, regardless of which type of funding you’re seeking. The reason is that the information you can provide about the work you’ve done, will do, and can do for your business will matter to the investors. If you don’t have a real business plan, don’t try to get crowdfunding.

Do You Know How Much Money You Need? – If you have created a good business plan, you will know exactly how much money you need to raise. If you don’t know how much you need, then you can’t do a crowdfunding campaign because you must say how much you want to raise for it to work.

Can You Make a Valuable Offer to Donors or Investors? – If you do equity funding, how much equity are you willing to give up for your total needs? If you’re not willing to give up a good percentage of your equity in exchange for the amount you need, it’s not likely very many people will be interested. If you are doing the reward type funding, then you should try to offer something worth it to your donors.

How Does Your Target Market Feel about Crowdfunding? – In some cases, your target market may hate the idea and lose faith in you. It’s not because crowdfunding is bad; it’s because some people don’t understand it. You may consider a campaign of education before you do it if this is the case.

Do You Have a Marketing Plan Ready? – Once you set up your crowdfunding campaign, it won’t raise money by itself. You will be solely responsible for marketing your campaign. You should consider this in your budget too, because the best way to get the word out is through paid advertising.

Can You Invest Significantly Too? – You may not have money, but you must be willing to do the work it takes to get the word out and see your vision through should the funding come forth. Don’t wait around to see if the funding is coming, though; do what you can before you get the funding, so you’re ready.

Do You Understand Crowdfunding? – Before you embark on this journey, do your research so that you understand all the different crowdfunding options that exist for your business. Some may be more appropriate than others. Remember to read and understand the terms of service of any crowd-sourcing company you use.

Can You Make a Good Presentation? – If you aren’t good with making presentations, you may want to hire someone to help you so that you can show your potential donors, backers and or investors everything you are going to do and do in the best possible light.

Keep in mind that less than 1/3 of crowdfunding for businesses meet the goals they set for the fund. In some cases, that means they won’t get any of the funding at all. But that doesn’t mean it’s not a good idea to try.

If you’re raising growth capital to expand your business, you may want to consider using mezzanine financing as part of your funding solution.

Mezzanine financing is a form of debt that can be a great tool to fund specific initiatives like plant expansions or launching new product lines, as well as other major strategic initiatives like buying out a business partner, making an acquisition, financing a shareholder dividend payment or completing a financial restructuring to reduce debt payments.

It is commonly used in combination with bank provided term loans, revolving lines of credit and equity financing, or it can be used as a substitute for bank debt and equity financing.

This type of capital is considered “junior” capital in terms of its payment priority to senior secured debt, but it is senior to the equity or common stock of the company. In a capital structure, it sits below the senior bank debt, but above the equity.

Pros:

1. Mezzanine Financing Lenders are Cash Flow, Not Collateral Focused: These lenders usually lend based on a company’s cash flow, not collateral (assets), so they will often lend money when banks won’t if a company lacks tangible collateral, so long as the business has enough cash flow available to service the interest and principal payments.
2. It’s a Cheaper Financing Option than Raising Equity: Pricing is less expensive than raising equity from equity investors like family offices, venture capital firms or private equity firms – meaning owners give up less, if any, additional equity to fund their growth.
3. Flexible, Non-Amortizing Capital: There are no immediate principal payments – it is usually interest only capital with a balloon payment due upon maturity, which allows the borrower to take the cash that would have gone to making principal payments and reinvest it back into the business.
4. Long-Term Capital: It typically has a maturity of five years or more, so it’s a long term financing option that won’t need to be paid back in the short term – it’s not usually used as a bridge loan.
5. Current Owners Maintain Control: It does not require a change in ownership or control – existing owners and shareholders remain in control, a key difference between raising mezzanine financing and raising equity from a private equity firm.

Con’s

1. More Expensive than Bank Debt: Since junior capital is often unsecured and subordinate to senior loans provided by banks, and is inherently a riskier loan, it is more expensive than bank debt
2. Warrants May be Included: For taking greater risk than most secured lenders, mezzanine lenders will often seek to participate in the success of those they lend money to and may include warrants that allow them to increase their return if a borrower performs very well

When to Use It

Common situations include:

• Funding rapid organic growth or new growth initiatives
• Financing new acquisitions
• Buying out a business partner or shareholder
• Generational transfers: source of capital allowing a family member to provide liquidity to the current business owner
• Shareholder liquidity: financing a dividend payment to the shareholders
• Funding new leveraged buyouts and management buyouts.

Great Capital Option for Asset-Light or Service Businesses

Since mezzanine lenders tendency is to lend against the cash flow of a business, not the collateral, mezzanine financing is a great solution for funding service business, like logistics companies, staffing firms and software companies, although it can also be a great solution for manufacturers or distributors, which tend to have a lot of assets.

What These Lenders Look For

While no single business funding option is suited for every situation, here are a few attributes cash flow lenders look for when evaluating new businesses:

• Limited customer concentration
• Consistent or growing cash flow profile
• High free cash flow margins: strong gross margins, low capital expenditure requirements
• Strong management team
• Low business cyclicality that might result in volatile cash flows from year to year
• Plenty of cash flow to support interest and principal payments
• An enterprise value of the company well in excess of the debt level

Non-Bank Growth Capital Option

As bank lenders face increasing regulation on tangible collateral coverage requirements and leveraged lending limits, the use of alternative financing will likely increase, particularly in the middle market, filling the capital void for business owners seeking funds to grow.