A company may need to raise capital for a number of different reasons depending on short term and long term goals. After initial start up, raising capital becomes a priority for the median and long term financial needs of a firm.
Before you make your plans to raise additional capital. Consider what questions the board will ask about “risk”. Board members and investors of high-growth firms are interested in knowing if your risks are greater than they were 12-24 months ago and if there is any unforeseen event that could help your firm leap over your competition. There are a number of options available for additional rounds in financing. Which ever option you choose, make sure to include points about your risk management plan.
Issue of shares
This is the most vital method of raising mid to long term capital. The liability of stake and share holders is limited to the share’s face value; they are also very easily transferred. While a private company cannot invite the public to invest in their share capital, public limited companies can take advantage of this type of public trading. There are two types of shares:
- Equity Shares: The rate of dividend of these shares is reliant on the profits available and the discretion of the board. There is no fixed burden on these shares and each share carries one vote.
- Preference Shares: Dividend is payable on these types of shares at a fixed, steady rate. Again, there is no fixed burden on the company’s finances and these shares do not surrender their voting rights.
Issue of Debentures
These are loans which can be secured by a financial institution. These loans are granted maximum time period and are held against future projects and business endeavors. Loans of this type are guaranteed against company property, gold, and/or assignment of stocks and shares.
Loans from Commercial Banks
These loans are granted by commercial banks against the security of property and assets. There is no legal formality to these types of loans, except that of creating a mortgage on company assets.
This is a strategy which involves inviting shareholders, employees, and the general public to deposit savings into with the company. The advantages include:
- The rate of interest on these loans is less than that of a bank loan.
- During a credit squeeze, these loans are easier to secure than bank loans.
- Credit-worthiness is not an issue on these loans.
There are options available for mid and long term capital needs. If you have a track record of understanding your risks and managing the upside, you will have more options for growth. We invite you to contact us for more information about TechAssure Association and the opportunity to work with one of our members.