The process of raising funds is no easy task, especially for small start-up businesses. Today, a number of these businesses seek alternative sources for finances, with the hope of getting something cheaper and faster than banks. The securities business is not for the faint-hearted and squeamish, since raising your funds can be difficult and time-consuming.
But when it does work, investors and companies reap multiple benefits from it.
The Deciding Factor: Why Consider It
The benefits your company reaps from private placements depend on the type of securities you sold. For example, if your company sells stock, you guarantee a zero drain on the company’s cash flow. For the purposes of balance sheets, a private placement treats stockholder’s equity separately from the liabilities, which improve your business’ book value and net worth.
In terms of debt, private placements also offer several advantages. Apart from the additional savings on transactions costs, you can also get interest rates lower than those offered by commercial banks. Privately placed debt also offers more lenient terms and do not require companies to use its assets as collateral.
Seeking Assistance for Placements
Like any complicated transaction, cost plays a major factor with private placements. In some cases, transaction cost is lower than traditional sources of capital but could be higher in others. It pays to enlist the help of a placement agent or a regulation D attorney in Utah.
When you use a placement agent, it tends to increase costs due to the sales commissions, as well as the broker’s expenses. Unfortunately, a number of small businesses will not benefit much due to the small offerings that fail to interest brokers.
The Anatomy of Private Placements
Private placements often take numerous forms. Some are a combination of equity securities and debts designed to enhance an investor’s position or the security’s marketability. This gives potential investors a good position on liquidation and cash flow from dividends.
There is no magic when it comes to private placements. It requires dedication, good information, and hard work. Small businesses can reap good rewards if they do these placements right.