Businessnewsdaily.com lists several types of financing methods:
Angel investors invest in early-stage or startup companies in exchange for a 20 to 25 percent return on their investment.
Venture capital is money given to help build new startups that are considered to have both high-growth and high-risk potential.
With factoring, a service provider will front you the money on invoices that have been billed out, which you then pay back once the customer has settled the bill. This way, the business can keep going while waiting for customers to pay their outstanding invoices.
Crowdfunding on sites such as Kickstarter and Indiegogo can give a boost to financing a small business. These sites allow businesses to pool small investments from several investors instead of seeking out a single investment source.
Businesses focused on science or research may receive grants from the government. The SBA offers grants through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
Negotiating Finance Contracts
“A loan commitment is like any other contract: a binding agreement enforceable in accordance with its terms.
A borrower often relies heavily on the lender’s funding commitment. An existing loan might be maturing. The borrower may have signed a contract to purchase a company or a piece of land, and the closing date is rapidly approaching. The borrower can never have complete assurance that the lender will close the loan when needed because of various conditions precedent that the borrower must meet. But there are still several ways to mitigate this risk,” says John Oest of americanbar.org.
Oest continues to outline terms that should be included in the structure of the contract:
- The amount that may be borrowed.
- The applicable interest rates. Any fixed rate of interest should be stipulated. If the rate will vary, specify the underlying index. For a “prime-based” loan, specify whether it is based on the lender’s “announced” prime rate or a widely quoted rate from some other major financial institution.
- The maturity date of the loan.
- Any rights to extend the maturity date and the conditions for doing so. Be sure the lead time required is not too onerous.
- A description of the fees and their due dates. When will fees be deemed to have been earned? Can the bank’s outside legal fees be capped, or at least estimated?
- Financial covenants such as debt service coverage ratios, tangible net worth requirements, or capital expenditure limitations.
- Calculation of interest. On what basis will interest be calculated? For example, will it be based on a 365/6-day calendar year, a 360-day year of equal 30-day months, or some other convention?
Why You Need Legal Help
Finding the right financiers and the right type of financing can be challenging. There are various ways to go about and options when it comes to financing. Choosing an experienced, thorough attorney, like the ones at Broussard Dove Law firm, can make this process easier by looking over all financial paperwork.