Business Financing

Often the principals establishing a business invest an adequate amount to meet the initial operating costs. However, at some point the business will need outside financing, either a loan with a promise to pay interest and a repayment schedule or an equity investment, which has no obligation to pay interest or to make payments on a schedule. In order to obtain any type of financing, the business will have to develop a business plan that contains financial statements.

To obtain a loan, if the business is not secure enough, the lender will require the principals to make personal guarantees to repay the loan. To repay a loan, the business must have immediate prospects of generating revenues.

To obtain equity financing, you are faced with a complex undertaking and need to understand the complexity of the undertaking. The most important consideration in obtaining equity financing is the management of the business - the management's quality and the control the passive equity investors will have over the management. Be aware that before selling an equity investment in your business, you must comply with federal and state securities laws, laws that impose great liability if you do not comply strictly. Consult a lawyer before selling an equity investment in your business. A security is defined very broadly so the sales of anything that could be construed as an investment interest is considered a security, no matter how you define it. Virtually all sales of limited partnership interests are considered sales of securities. Securities laws impose significant disclosure and regulatory obligations. The main aim of such laws are to prevent fraudulent promises made in selling an investment. Exemptions from many of the disclosure and regulatory obligations exist for the small business, but you must work closely with a lawyer in order to fit into one of these exemptions.