One of the most talked-about forms of financing, Equity financing (venture capital) was popular in the nineties. These companies raise money from investors in order to manage a portfolio of privately held companies. In short, they are intermediaries. They fund companies that are in early-stage development, expansion, or for special cases such as turnarounds or leverage buyouts.
You can seek equity from business partners who work with the SBA. Small Business Investment Companies (SBICs) are privately owned venture capital firms that work with and are licensed by the SBA. These companies use SBA funds (obtained at favorable rates) and their own money to invest in promising small companies, grant long-term loans, and provide other debt capital. SBICs also assist management with experience, contacts, and business expertise.
Owner’s Investment. If you are forming a new business, be prepared to invest a certain portion of the start-up costs personally. Lenders rarely finance 100% of the business.
To qualify for SBIC financing, a company has to have a net worth of $18 million or less, and the average after-tax income cannot exceed $6 million for the last two years. Alternative size standards apply for companies to which the above criterion is too low. For more information, visit http://www.sba.gov/INV/forentre.html.
Note: The process for investment evaluation by an SBIC is similar to any other venture capital firm. Therefore, you will have to build a business plan, gather your financial statements, and—most importantly—research the SBIC that you plan to approach. For a list of SBICs in your area and their investment criteria visit http://www.sba.gov/INV/index.html
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