Raising Capital with The Least Risk

The San Luis Obispo business attorneys from Toews Law Group, Inc. have extensive experience with helping new and established businesses navigate a variety of business issues. There can come a time when a business needs to raise extra capital. Those times can include:

• Start-up funding
• Capital for expansion such as acquiring new equipment, growing a new product line
• Purchasing real property for business operations
• A temporary business slowdown
• Operating capital for any other number of reasons

There are many ways to raise capital. The top consideration when the time comes to look for more money for your business is are you going to be able to assume debt or other kinds of financial obligations with minimum risk?

A loan is often the first thing that comes to mind, but there may be other ways to raise capital without risking losing collateral, or downgraded credit. Most everyone signs the loan papers with the best of intentions to pay the loan in full. Any lending institution has done the homework and has been convinced that making a loan to your business is a low-risk. However, things happen. An unexpected downturn, such as the current COVID-19 crises, the death or resignation of a key player in your business, even a competitor undercutting your prices can cause a business downturn.

The business attorneys at San Luis Obispo’s Toews Law Group, Inc. can help you take the steps to obtain the financing that is right for your business and protect your business by minimizing the risk as much as possible.

Sources for raising capital

Sources for raising capital include:

• A loan from a financial institution. Depending on the conditions of the loan, such as interest rate and the term of the loan, there may be other, less-riskier choices.
• Angel investor: An angel investor, sometimes referred to as private investors or “seed investors” are high-worth individuals who provide financial backing for small startups and entrepreneurs. Financial arrangements with angel investors are generally very flexible and may range from an equity ownership in the business, to a one-time investment, to ongoing financial injections at specified benchmarks.
• Venture capital (VC): Venture capital investments are private equity investors who provide capital to companies with a high growth potential for a stake in the business equity.
• A limited partnership can bring needed funds at critical times as well. The concept is similar to angel investors or venture capitalist in that a limited partner may infuse some cash into the business but a partner usually has an active role in the business as well. Although, some choose to just invest capital and remain a “silent partner.”
• Depending on the size of your business and the legal entity, such as corporation, selling shares might be an option. However, there are a number of procedures and regulations that need to be followed.
• Borrowing needed funds from family or friends is also an option. When choosing this route for funding, it is very important to have written agreements in place that prevent misunderstandings and protect everyone involved.
• Some startups have raised operating funds through crowdfunding. This method has become popular in the past few years. Even though some crowdfunding ventures have been successful, there are still legal considerations to understand before embarking on a crowdfunding campaign.

The process for raising capital

Regardless of the funding source you ultimately decide upon, there are certain things that need to be in place before seeking capital:

• A business plan that includes financial projections, what they capital is to be used for, and when it will be paid in full
• If you are a sole-proprietorship, you may need a personal financial statement and a few years of tax returns.
• What kind of collateral are you offering?
• When taking in a partner, a solid and detailed partnership agreement must be drawn up
• Its wise to have loan agreements reviewed by a business attorney.
• If you are the CEO or on the board of a corporation and are considering offering stock, it’s important to consult with an attorney to give you the correct guidance and make sure all the associated paperwork is filed on time and correctly.

Toews Law Group, Inc. can help you take the steps to obtain financing, protect your business, choose the insurance that is right for your business and more. Getting the correct answers from a business attorney in San Luis Obispo can have a direct impact on the success and viability of your business. The challenges for obtaining capital for any business of any size can seem overwhelming. However, there is no need to go at it alone. Give Toews Law Group, Inc. a call today.