Calumet Financial Services

The root is the most important factor for any business to flourish. If you are planning to start a business of your own, first make the root stronger by having a strong financial ground. New business loans will help your business attain heights. When you are starting a new business, this loan will help you solve most of the financial problems that arise while setting up an enterprise.

New business loans can be used for various business related purposes like buying machines and equipments, vehicles, and other resources that are essential to startup a new business.

Before taking any step forward you should first of all prepare a business proposal in order to apply for a business loan. This requires a lot of research and estimations. It should bring out a clear idea about how much money you will need, how much money you hope to make, what competition you will face. It should also give details about what equipments and training you will need and other information depending on the requirements. With these details, lenders will get to know the feasibility of your business and whether it is sustainable or not. You should always keep in mind that a well prepared business proposal increases the chances of getting a business loan.

Finding a new business loan is not a tough task. With coming up of more and more online lenders, internet provides you with the fastest and the simplest procedure to avail new business loans. All you need is to just click on the mouse button and you can access various websites offering new business loans. At the time of filling the application form, lenders will ask you for certain information about your personal credit history and business plan.

New business loans are offered in both secured and unsecured forms. With a secured new business loan, you are required to put a security against the loan. Security can be anything such as your home, car or a kind of valuable property. Since the presence of security covers the risk of lending money, thus you can avail these loans at a lower interest rate. On the side, unsecured loans do not ask for any security, but the interest rate is charged comparatively a bit higher.

You need not worry about your credit score if you are seeking for new business loans. If you have a bad credit, look for lenders providing business loans for borrowers having bad credit. You will get cheap loan with low interest and easy repayments which will satisfy your financial situations.

With all its advantages, business loans can help you make your dream come true. Now you can start a new business of your own without any financial crisis.

The term sheet of a private placement memorandum details the specific terms and nature of the investment. This is not as simple as explaining that one share can be purchased for a certain price. Depending on how the business is incorporated, there are different options for the types of equities that can be sold through a private placement.

Equity Shares – Membership Units and Stock

If the business is incorporated as an LLC or limited partnership, shares can be sold in the form of membership units in the company. These membership units can be preferred or general units. Preferred units generally carry stipulations that they will be paid dividends first, but may offer no voting rights (much like a limited partner).

If the business is incorporated as a corporation, shares can be sold directly to investors. In either situation, you are sharing ownership with the investor and must keep in mind that ultimate control goes to the party or parties with more than 50% of the shares. If you are selling more than this, be prepared that you are giving up control.

Convertible Debt

Instead of selling shares directly to investors, convertible debt can be sold. Although there are many types of convertibles, these instruments (sometimes called convertible debentures, convertible loans, or convertible bonds) usually start as loans or bonds with a stated interest rate. This offers investors guaranteed returns over the first few years. At a specified date, the debt may be converted to ownership shares based on some method of valuation chosen previously or the principal can be paid back to the lender. It is up to the investor whether to get his money out at that time or to become a stockholder.

This method shares some similarities with equity and some with debt. Like debt, it lowers the initial risk of an investor by offering a guaranteed return. Like equity, there is greater upside potential in the long-run. This is a good option for cash-generating start-ups who would like to postpone the point of having to value the company until a later date. Hopefully, by the time of the conversion, the track record of sales and profits will support a higher company valuation. This means you will not have to give away as much equity to investors as you would have during the initial capital raising.

Eric Powers is associated with Growthink, the leading investment banking firm for emerging businesses. Growthink has provided private placement offering memorandum services since 1999. To learn more about Growthink’s private placement memorandum services, call 800-506-5728.

It is important to understand First Round Financing terms and conditions that your investor will likely use in structuring their investment in your company.

There are different nuances to consider depending on whether you are talking with a PIPE Fund, private equity firm, angel investors, or hedge fund investors. These investors tend to use different structures and even have different exit strategies.

You have to think of financing like a chess game. You have to think 2 or 3 steps ahead. Most companies don’t raise venture capital financing in one round without the need to raise financing in two or three subsequent rounds. First round financing therefore becomes important for several reasons.

1. If you give away too much equity (your company’s common or preferred stock) in the first round, you have greatly diluted the ownership position of your Management Team. For instance, if you give up 45%, and you are likely going to need subsequent financing, then the result will probably mean giving up voting control of your company to raise more capital. Of course, if you can convince subsequent round investors to give you Super Preferred voting rights then you may be able to maintain voting control, even if you loose majority ownership in the company.

2. Venture Capital firms typically like to control the whole deal. This means if you give up to much in the first round financing, you will be at their mercy in subsequent rounds. They will take advantage of the fact that you are desperate for more cash for the company. They will also have the deal structured so that if you refuse to give up control in a subsequent financing round, they will be able to take over the company and replace management. They can do this by structuring the financing terms with a number of different “default clauses”. For instance, if you default on a payment or don’t meet certain goals that have been established.

3. Another problem with not understanding all the implications of first round financing is that it can restrict your ability to raise subsequent financing. For instance, let’s say you and the investor(s) that provided the initial funding have a disagreement and you decide to go elsewhere for more funding. This second round investor is going to look at all documentation on the initial funding you received and may even want to talk to the first group that funded your company. There may be restrictions on subsequent rounds that scare other investors away. I am talking about restrictions like, rights of first refusal, Security Agreements that run in favor of the initial investors and clauses that prevent you from giving other investors more voting control or a better stock purchase price than the first investor group.

Private Equity firms have highly skilled management teams, advisory boards and armies of lawyers at their disposal. They need to be sure that they have control over subsequent financing rounds so they are not diluted themselves.

You need to have competent legal counsel to advise you during the first round of financing. It is extremely important to know the impact subsequent financing rounds will have on management’s stock ownership and voting control. That is why you need to carefully analyze and understand your first round of financing. If not properly negotiated and understood, it can have devastating effects on your subsequent rounds of financing or your ability to even obtain subsequent financing.

By devoting extra caution and time, commercial borrowers can avoid serious commercial real estate loan mistakes. The most obvious investment benefit will be to reduce the potential for critical commercial mortgage problems, both now and throughout the life of the business finance terms arranged.

While we will not be addressing all possible commercial mortgage mistakes in this article, we will include several of the most severe issues to anticipate. The problem areas described below are typically more critical than expected by most business borrowers.

Inexperienced Business Finance Brokers and Lenders -

Commercial mortgage financing has recently become more popular with brokers and lenders that previously focused on residential real estate financing. With the increasing chaos associated with residential financing, many lenders and brokers which primarily provided residential mortgages have been forced to look for alternate sources of revenue. Many of them are devoting increased attention to business finance and investment loan services.

While this shift might eventually result in a positive outcome for commercial borrowers, the immediate impact is a sudden influx of inexperienced residential mortgage brokers and lenders attempting to provide investment advice for business financing and commercial real estate financing. For most business borrowers, the use of inexperienced business finance advisors will be a mistake of potentially serious proportions. As we have written about extensively, there are approximately 25 major differences between residential financing and commercial financing, and most residential financing experts are simply unprepared for business loan complexities.

SBA Loan Refinancing for a Commercial Mortgage -

Because it is more difficult to refinance an SBA loan or conventional commercial mortgage than many borrowers realize, it is advisable to thoroughly review refinancing options before completing the initial business financing if at all possible. The biggest potential business finance mistake involving an effort to refinance is likely to be an assumption that refinancing can be easily accomplished and whenever the commercial borrower chooses.

In reality most business and commercial mortgage refinancing situations will require less attractive terms than the initial business financing. Since acquisition financing includes terms not possible upon refinancing, this observation is particularly relevant for SBA loan refinancing. Another potentially critical mistake is to overlook short-term business financing options which will eliminate refinancing problems.

A major obstacle to refinancing a commercial mortgage, whether it involves an SBA loan or not, will be prepayment penalties and other financial restrictions that effectively prevent refinancing for several years. Short term possibilities should be considered if a borrower expects that commercial loan refinancing in the first three years of the business financing is likely.

Specialized Commercial Real Estate Investment Property Issues -

With more specialized commercial properties and investments, the potential for serious mistakes increases substantially because of the advanced business financing complexities. Commercial mortgage loan choices are also likely to be more limited because there are fewer lenders which will provide this kind of specialized commercial real estate financing.

From a lending perspective, office buildings, apartments and retail stores are less specialized. This is due to the likelihood that potential users and renters of such properties are more interchangeable than for a business investment involving specialized uses such as a funeral home, golf course and gas station.

The business finance costs for more specialized properties are likely to be more variable and unpredictable than for office buildings, retail stores and apartments. For example, environmental and appraisal requirements for properties such as funeral homes and gas stations will be extensive and time consuming.

Solutions and Strategies for Avoiding Business Financing Mistakes -

The potential business finance mistakes described above can be overcome successfully. Commercial borrowers should look for resources which will provide relevant strategies and solutions for a business owner contemplating business purchase or refinancing as well as facilitate a better understanding of complex commercial real estate financing issues. Business borrowers should thoroughly discuss business financing options with a business loan expert before refinancing or buying a commercial property or business investment.