Capital Loan for Mergers and Acquisitions
Growing a business costs money. You may hit a wall that requires a new infusion of significant business funding. Depending on the amount required, a number of alternatives exist. We have helped hundreds of businesses get more funding through Government Grants and other private equity options. We even put together this comprehensive guide to funding from Governments, Banks and other equity capital sources in Canada and the USA.
Business Funding: Debt vs Equity Financing Examples
The alternatives for business funding for growth include angel investors, credit cards, credit lines, crowd funding, equity capital, grants and venture capital. If expansion requires only a little new money, a credit card or credit line can provide it. If expansion requires a large amount of funding, an angel investor or venture capitalist funding can provide the funds.
Some expansion matters, such as acquiring another firm or developing a new product, require crowd funding or an equity capital loan. Government grants provide a more rare, but useful funding possibility. Although tough to qualify for and obtain, you don’t have to pay them back and you retain full control of the company.
In the cases of angel investors, venture capitalists, crowd funding through initial coin offering (ICO) or initial public offering (IPO), or equity funding or loan, you take on capital partners. This means you no longer retain sole control over your business since others own a stake.
What Is Equity Funding?
Equity funding raises money by selling a stake in your company. Another option uses equity as a loan basis. Essentially, the owner uses the business or its assets, such as securities or real estate as loan collateral. A hard money loan, also called a bridge loan, is a common type of equity loan used in real estate.
The advantage of equity funding by selling a stake is acquiring a large amount of funding quickly, with the main disadvantage of someone else owning part of your company. The level of day-to-day influence of the capital partners depends on whether they want an active or passive role.
An equity loan lets you retain full ownership, but if you default on the loan, you lose the equity used as collateral. Either option means you’ll have someone who expects you to provide a return on investment whether by stock dividends or timely loan payments.
Private equity funding can provide a significant infusion of capital to enable an acquisition or merger. It depends on your willingness to give up as much as a majority stake of 51 percent.Your business needs a minimum of $2 million of earnings with at least $10 million in revenues. According to Inc., equity firms favor middle market companies and want to see at least a 25 percent rate of return. Expect a private equity firm to either offer an IPO within three to seven years or sell the business. The latter option would allow you to buy back their shares.
Loan or Sale?
Whether to apply for a loan or sell off equity depends on your needs. A loan allows you to quickly obtain funding. Debt financing and business loans provide quick funding options. Business loans from a friendly financial institution can take a matter of hours to process, but a Small Business Administration loan takes time and tons of paperwork.
An equity financing sale requires identifying investors, pitching your company or product, legal contracts, etc. It produces a longer wait for funds.
The amount of money needed influences your choice, too. An investment of $10,000 or so only requires a loan. If you require millions though, equity financing provides it. Most equity investors won’t look at small projects like the one requiring only $10,000.
If you only need money, the loan offers it. The advantage of equity financing is the investors. You become privy to their experience and advice. They function as an invested resource in the future of your firm.
You’ll need to decide if you want a partner – silent or active. If not, choose the loan.
What’s your ultimate business goal? If it’s a global business or major corporation, then equity financing provides what you need. If you prefer to run a small, local business, choose the loan. Equity investors look for a greater ROI than a local business normally provides. If you don’t want to eventually IPO, a loan works best.
Help from Financial Consultants
Don’t mull over the choice of loan or sale alone. Pinnacle Solutions offers three corporate services that can help you:
- research and development grants via the Canadian government,
- equity funding,
- corporate coaching and consulting services.
Our financial consultants do more than guide you through our corporate services. We function as business consultants who help you determine the best route for growing your business.
We offer 23 years experience in business investing and consulting. Established in 1995, we’ve since served the Canadian business community with a combination of services, including strategic planning, credit, equity funding and consulting.
Call us at 1-877-724-7733 or email us at email@example.com for more information on your funding options. Visit our Equity Capital page to familiarize yourself with what we offer. Let us help answer your questions about business expansion and equity funding.