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When starting, or expanding a business, an owner typically has a number of separate financing options to consider. Since equipment does not typically last 20 years, lenders do not finance equipment the same way they would a building. When a Client needs capital for buildings, equipment, inventory, and working capital, the financing will not be rolled into one loan. There will most likely be four, or more, types of financing instruments used for this Client.

Debt Financing:

Capital investment of borrowed funds. Terms of the financing reflect the risk associated with the project. Borrower builds equity through the repayment of the loan.

Conventional Loans:

Loans made with real estate as the security. The loan conforms to accepted standards and the lender looks solely to the credit of the borrower, and the security of the property.

Construction Loans:

A loan which allows a Client to perform the development or improvement of real estate. These loans usually have terms of two years or less, and may require a permanent financing commitment to be in place at the end of the construction loan term.

Equipment Leasing:

Allows the Client to obtain necessary equipment without a down payment, no debt, and no ownership. Options to purchase available.

Equity Financing:

Capital raised from owners. Funds solicited from those outside the company ownership, will need to be accompanied by an offer of ownership participation.

Sub-Debt Financing:

Asset-based mezzanine funding. Due to risk, rates are higher than senior debt. Stock options are often included/required.

Venture Capital:

Direct investment with a participation in ownership and possibly controlling interest in the company. High rates of return are expected. Exit strategies typically in 3-5 years.

Angel Capital:

Due to the great risk involved at this stage, funds typically must come from private parties who have a great belief in the management and the opportunity offered.

For additional information concerning business loans and venture capital click here

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