Raising capital essentially means getting the money needed to grow business from investors.
A capital formation can be described as the means through which capital is transferred from people who lend money to businesses that require funds.
Transfer of capital takes place in two ways:
- directly, meaning that a business sells its stocks or bonds directly to savers who provide the business with the capital in exchange for the stocks or bonds.
- indirectly through an investment banking house or through a financial intermediary, such as a bank, mutual fund, or insurance company.
In the case of an indirect transfer using an investment bank, the business sells securities to the bank, which in turn sells them to clients who wish to invest their funds. In other words, the capital simply flows through the investment bank. In the case of an indirect transfer using a financial intermediary, however, a new form of capital is created. The intermediary bank or mutual fund receives capital from savers and issues its securities in exchange. Then the intermediary uses the capital to purchase stocks or bonds from businesses.
Businesses need a substantial amount of capital to operate and create profitable returns. Balance sheet analysis is central to the review and assessment of business capital. Split between assets, liabilities, and equity, a company’s balance sheet provides for metric analysis of a capital structure.
Debt financing provides a cash capital asset that must be repaid over time through scheduled liabilities.
Equity financing provides cash capital that is also reported in the equity portion of the balance sheet with an expectation of return for the investing shareholders.
Debt capital typically comes with lower relative rates of return alongside strict provisions for repayment.
Some of the key metrics for analyzing business capital include the weighted average cost of capital, debt to equity, debt to capital, and return on equity.
But capital also refers to financial assets, including funds that are held in an account, that are used to build wealth in your business. Capital can also be described as investments that generate wealth.
Raising capital essentially means getting the money you need to grow your business from investors. You can raise capital through investors, or you can take out debts, like loans or credit cards, to finance your business venture.
We help companies identify appropriate funding channels, according to the purpose of financing and to present their future visions in a suitable and attracting manner.
Our Capital Raising Services:
We assist companies to secure debt financing from institutional banks and business to business lenders. Businesses can acquire capital through the assumption of debt. Debt refers to loans and other types of credit that must be repaid in the future, usually with interest. The most common types of debt capital that companies use are loans and bonds.
The term ‘debt finance’ is used to describe finance where:
the borrower receives capital, either for a specific period (redeemable debt) or possibly in perpetuity (irredeemable debt);
the borrower acknowledges an obligation to pay interest on the debt for as long as the debt remains outstanding; and
the borrower agrees to repay the amount borrowed when the debt matures (reaches the end of the borrowing period).
The most common forms of debt finance are:
Borrowing from banks
Issuing debt securities
Debt finance can be secured against assets of the borrower. When a debt is secured, the lender has the right to seek repayment of the outstanding debt out of the secured asset or assets, if the borrower fails to make payments of interest and repayments of capital on schedule. The secured assets provide a second source of repayment if the first source fails.
When a debt is unsecured, the lender does not have this second source of repayment in an event of default by the borrower.
For both secured and unsecured debt, the borrower is usually required to give certain undertakings to the lender. The borrower will be in default for any breach of covenant, and the lenders will then have the right to take legal action against the borrower to recover the debt.
Advantages of Debt Financing
Issuing of bonds and borrowing money from lenders helps a company maintains complete ownership. The benefit of maintaining ownership is that management has complete control over the decisions made on behalf of the company.
Management also can choose its board members. The only obligation a debtor has to a lender is to pay back the principal and interest.
Tax deductions on interest paid
Another advantage of debt financing is that companies receive tax deductions for the interest paid on debt. The tax agency considers the interest paid as a business expense and allows businesses to deduct the payments from their corporate income taxes. This is beneficial for businesses because it allows them to use the money which would have been used to pay tax to grow the business.
Greater Freedom and Flexibility
Businesses using debt financing to raise capital have more flexibility than those using equity financing because they are only obligated to the investor or lender for the repayment period. After all, money is paid back, the business is completely free from its obligation.
We help companies obtain equity financing. Equity financing occurs in different forms. These are; private equity, public equity, and real estate equity. Private and public equity will usually be structured in the form of shares. Public equity capital raises occur when a company lists on public market exchange and receives equity capital from shareholders. Private equity is not raised in the public markets. Private equity usually comes from select investors or owner’s equity does not involve a direct obligation to repay the funds. Instead, equity investors receive an ownership position in the company which usually takes the form of stock, and thus the term “stock equity.” Equity finance is finance provide by the owners of a company (ordinary shareholders), also known as equity shareholders. New equity finance can be raised by issuing new shares for cash. New shares can also be issued to acquire a subsidiary in a takeover.
Advantages of Equity Financing
- Freedom from debt
- There are no repayments on investments.
- Availability of more funds
- Investors are often willing to provide additional funding as the business develops and grows.
Private Placement Memorandum
A Private Placement Memorandum (PPM) which is also referred to as Offering Memorandum, is a document used to raise capital. It is prepared by organizations seeking to raise funds through the sale of securities. Placing or raising money privately through a Private Placement Offering is by definition selling securities. The Private Placement Memorandum or the Offering Memorandum lays out for prospective investors the particular terms of the investment opportunity. The memorandum will contain details of the securities being offered to investors, as well as vital company information such as the market opportunity, financial projections, business strategy, risk factors, management team and the subscription agreement documents.
Normally, an issuer will sell securities in the form of debt or equity, such as shares or common stock for equity, or notes or bonds or convertible debt.
We have a team that is competent in writing private placement offering memorandum documents for and have been involved in helping numerous companies raise capital from accredited investors.
Advantages of Private Placement Memorandum
Private placement memorandum adds protection to the company and provides prospective investors with clearly-stated terms and conditions. This is achieved by disclosing the overall business strategy and the pertinent risks of the business. If the proper risks are outlined in the private placement memorandum, in the event of a default or business failure (e.g. the company goes bankrupt because one of the stated risks was encountered), the issuer of the offering will have protection from investors who are seeking monetary recourse.
Aside from the need to incorporate various rules and disclosures imposed by state and federal regulators that guide private placement offerings outlined in the PPM, the document provides credibility and integrity to those who are considering the investment. A private placement offering memorandum that is properly constructed indicates that the issuer has conformed to best practices by providing the necessary documentation to properly raise money and to properly accept money.
Reasons why businesses raise capital
It has been established that working capital is a key aspect of any company’s financial health, and not having enough working capital can have a serious impact on the future of your business.
Many businesses choose to apply for external funding to create enough working capital to enable them to fulfil their growth ambitions. A loan can cover short-term funding requirements while giving the business the money it needs to grow. It also bridges the gap between customer orders and supplier payments to help the company meet its funding obligations.
Working capital loans can provide a useful ‘cushion’ for businesses should there be a need for extra cash, day-to-day running costs are covered with a loan. Seasonal businesses may benefit from working capital funding during their quieter periods to cover basic expenses.
Growing your business and increasing sales often requires you to purchase assets such as new machinery or vehicles. While you may have enough cash to cover working capital expenses for your company, you may look for a loan to cover the purchase of new assets to enable your business to expand. An asset funding loan is a great way to spread the costs of acquiring an expensive new asset. An asset purchase loan can be used to acquire different assets for your business, depending on what you need to fulfil your expansion plans.
Using a loan to acquire a piece of new machinery will enable a business scale up production while spreading the cost rather than paying a large amount upfront.
Start a business
Businesses that are in the early stage will need funding to get off the ground. While most owners will use their funds to start the business, very few manage to entirely self-fund the company to profitability, and will, therefore, have to seek external funding. There are a variety of options for external startup funding, including bank loans, equity investment from a business angel, crowdfunding, and funding grants. A loan to start a business can be used for everything from buying stock to marketing to hiring staff, but startup funding can be difficult to secure and many traditional finance providers will require lots of information, such as a detailed business plan.
To raise capital for business expansion, for reorganization. Whether you are looking to increase sales, expand your range of products or services, move into new premises, hire more staff, or expand internationally, a loan for growth finance can help. However, you are planning to expand your business, growth finance that’s right for your company can help you take advantage of new opportunities and make your ambitions a reality. If your business has its daily running costs covered, external funding may be the solution you need to grow. Many such loans will have fixed monthly repayments over the term of the loan, enabling you to more easily plan your business finances as you grow. Raising capital helps to scale operations, to capture more of the market quickly, to do high-cost research.
For companies that are looking to restructure their debt, a loan that consolidates borrowings and reduces costs can make finances more manageable for business. A loan to restructure existing debt can make financial planning easier by reducing the number of monthly repayments, and could potentially reduce the total monthly repayments. Refinancing existing company debt can help companies grow by freeing up cash in business for working capital and expansion.
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