If there is one thing that all small business will have to face up to during the course of their entire existence is that there will be a need to pour some cash into it at various points in time. This can be for various reasons that range from the need to boost sales, expand operations into new markets, or merely to sustain the growth of the business.
While there are undoubtedly many sources of funding available to small business owners, every one of them will naturally have their inherent limitations and requirements. Commercial bank loans for example are often meant for businesses that have been around for a number of years and have managed to show a steady profit growth. Growing companies would do well therefore, to look into the many benefits that are offered by private placements.
Private placement or private investment capital, is defined as money that is invested in a company, typically in the form of stocks and bonds. These usually come from private investors, and does not necessarily have to be registered with the Securities Exchange Commission.
According to reports published by Thompson Financial, more than $416 billion was issued in the form of private placements in the year 2002 alone. As impressive as this figure sounds, most of those dollars were actually derived from pension funds, investment pools, banks and insurance companies, all of which amount to just a little more than 2,000 deals. Nevertheless, private placement remains a viable option for the small business owner however, and is often less costly and easier to implement than taking your company public.
Benefits of Private Placement
One of the main benefits of a private placement is that it allows for a higher degree of flexibility with regard to the amount of financing you can achieve, which can range from $100 thousand to $10-20 million, attainable with combinations of debt, equity, or debt and equity capital.
In addition, many investors are typically more patient than venture capitalists, and they will often be quite content to seek a 10% to 20% return on their investments over a longer term, typically 5 to 10 years.
You will also incur much lower costs with a private placement than you would if you were to approach venture capitalists or if you were to sell your stock to the public as an Initial Public Offering or IPO.
Finally, a private placement is a much quicker form of raising money than the traditional venture capital markets.
Where does one find Private Placements?
The funds from private placements typically come from accredited investors as defined by the SEC Rule 501, Regulation D. The requirements are as follows:
• The individual must earn 200k per year.
• The household must have a combined income of $300K per year or have a net worth of more than $1M.
With the current limited supply of capital in the stock market today, the private investor market is a feasible alternative for investors as well as small businesses. A private placement therefore offers an attractive form of business financing without the limitations inherent in taking a company public and giving up control.
Ephren W. Taylor II first revealed his extraordinary knack for making money at age 12 and he hasn't slowed down since. He was a self-made millionaire while still in his teens. In his twenties he became the youngest African-American CEO of any publicly traded company ever, City Capital Corporation (CTCC). Today Taylor and City Capital oversee tens of millions in assets for clients ranging from entertainment icons and pro athletes to church members and private companies. He is a dynamic speaker and author of the best seller "Creating Success from the Inside Out." Learn more at CashFreeInvesting.com, IRACashFlow.com or Ephren.com.
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