RAISING CAPITAL
Capital is a necessary asset to keep your company functioning so that it can reach its fullest potential. There are many ways to obtain capital like learning how to raise money with Regulation D 504 and 506, changing to a public company, selling shares or securities through a Private Placement Memoranda (PPM), or establishing a business line of credit.
REGULATION D 504
Regulation D is a federal law that states sales of up to $5,000,000 in securities in a 12-month period must be registered with the U.S. Securities and Exchange Commission (SEC). Rule 504 of Regulation D gives an exemption to this law, so companies can sell unregistered securities without having to become a public company as long as there is no general solicitation or advertising. It is recommended to fill out a Form D or have a Private Placement Memorandum. Some states have various requirements on these types of offers.
REGULATION D 506
Rule 506 of Regulation D states that there can be an unlimited number of accredited investors that are offered the securities, and there is an unlimited number of securities that may be offered. On the other hand, non-accredited investors need to fully comprehend business matters in order to be eligible to purchase. Additionally, the company selling securities must disclose proper information to the investors so that there is no false or misleading information.
PUBLICLY TRADED COMPANIES
Changing from a private to a public company can greatly increase your cashflow. You reduce liability risk by sharing it with multiple owners and advertise your company to the public. However, increased administrative costs and loss of full ownership are results of the great change. The government will also give tighter regulations, and the companies sensitive information will be easier to access.
PRIVATE PLACEMENT MEMORANDA
A Private Placement Memoranda (PPM) explains to the investor what they are contributing to. It provides relevant and honest details about the company to the investor like the basic engagements of the company, any risks, management descriptions, explanation on expenditures, how to deposit an offering, and much more. You can choose to give the PPM to trusted investors instead of leaving it for public access.
BUSINESS LINE OF CREDIT
The cashflow of a business fluctuates throughout each season. A business line of credit can help ease the shortcomings. This is a type of bank loan that does not charge interest on the unused credit and is available at any point of time. This is typically used for daily financial transactions within the business such as supplies and payroll. There is no retribution if you do not use the line of credit, so you can keep it as an option for emergencies. There are no fixed payments and the interest rates are usually lower than corporate credit cards. It is beneficial to use an amount that can be repaid within the year, so a business line of credit is best for short-term debt.
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