Even expensive debt, is cheaper than selling equity but in order to qualify for debt financing the business needs to demonstrate a track record of positive cash flows.
Traditional bank loans are usually the least expensive and have good terms, but hardest to qualify for because banks need a good track record of positive cash flows. SBA loans fall under this category because the SBA funding is all done through banks. These loans take owners credit into heavy consideration and normally require personal guarantees.
This solution is great for companies that don't have assets to use as collateral or years of strong profits. It's great for service and SaaS companies with recurring revenue. Revenue-based lending focuses on predictable revenue and the lender gets repaid as the business receives money from customers.
Having collateral makes lenders view the deal as less risky. This is great for businesses that want to finance equipment purchases or already have equipment or hard assets to use as collateral. Real Estate backed loans also fall under this category. This is a very well developed lending industry and there are many lenders in this sector.
Convertible debt allows the lender to convert their loan plus interest into equity at a predetermined price later if the company is doing well. Normally done in private deals between private (angel) investors and the business.
Dividend recapitalization is when the business takes a loan and uses the money to give owners a 'dividend' - this is a great way to "cash out" without selling equity or giving up control. Normally, this is done by investment banks and instituational lenders for larger businesses.
Equity based financing is simply selling equity in the company (in the form of shares normally) to investors. Privately held and small businesses raise funding this way all the time and you do not need to be listed on the stock exchange to raise funding this way.
A privately held company can sell equity to investors without being listed on the stock exchange. A couple (of many) restrictions to note:
Accredited Investors Only
Must have restrictions on transfers
"priced" simply means that the company and its shares have a defined price. It sounds obvious, but there are plenty of instances where the price or value of the business is not determined at the time of funding for technical reasons.
It's quite common with startups that raise investor funding to deliberately avoid placing a hard value on the business and its shares. This is often done when the company is very early in its development stage and its simply too difficult or impractical to value.
There are instances where startups with nothing but an idea will raise funding, in this example, they will likely use an investment vehicle like a SAFE or Convertible Note to get the deal done.
This is a relatively new industry and regulation that allows small companies to market it's shares to the general public. Normally, this is done through funding platforms (not by standing on a street corner selling a "hot deal").
There are multiple platforms for this, but many founders forget to appreciate the amount of marketing and effort required to do this on their own. You will need to invest time (and likely money) to market your deal and compete for eyeballs on these platforms.
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