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Case StudiesHow To Finance A Business
The big question is how to finance a business? A business needs financing at many different stages of its development. Reasons for a company needing financing include its initial startup, expansion, acquisition, and even shareholder departure from a company. Many entrepreneurs focus on how to finance a business that is just getting off the ground. For companies that are just entering an industry, Venture capital is the finance required. Venture capital allows for development of products, and expansion of production to reach the levels necessary to compete in the market. Working capital is for a business that has graduated past the startup and expansion stage. Working capital funds operations that occur daily. Bankers are interested and concerned with the level of capital that a company has. If the company does not have strong capital, they are usually more likely to default on their loans. Growth investors focus on how to finance a business of middle market size. In middle-market sized deals with around $50 million of revenue and greater, businesses seek financing to go beyond local markets. When learning how to finance a business in a middle market, companies will find more success in the private capital market with the utilization of a funding platform or private investment banker. These resources provide a timely connection between the company and available lenders.
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The investment banker will structure the deal in a way that will be most advantageous for you. Most business owners are not fully aware of the financial capital structures available to them. As the private credit market has expanded over the past 10 years, new financial structures have been created which provide high quality capital with flexible terms at lower cost. The decision on how to finance the business comes down to getting the highest form of capital in the right quantity at the best value. It is not a simple math equation but requires an intensive strategic review and multi-variable analysis of growth planning. A strong investment banker can quickly identify the best financial structure to fill your need and have a strong grasp of the type of lender to use.
Frequently Asked Question
1. Is it advisable to fund an acquisition with short term loans?
No, it is not advisable to fund an acquisition, a long-term use of funds, with a short-term loan. A long-term investment requires a long-term source of financing such as a long with a 5-year term.
2. How does the use of an investment banker help my credibility?
Using an investment banker is common for middle-market sized companies and most lenders infer higher professional standards to companies that use them. The investment banker’s championing of the deal helps establish your credibility.
3. How quickly will I be able to get a read from the market for my deal?
Most lenders will give very quick reads to your investment bankers, usually in less than a week. Some will tell your investment banker on the first call if they have genuine interest.
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