Equity Financing: Four Non-Bank Options for Real Estate Investors

"There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction. - John F. Kennedy

When many people start a business, they do so using their own resources and funds. And there can be great wisdom to this ... retaining control, a more lucrative exit, etc.

But it also puts your own personal resources on the line, and there are greater risks, as well as possibly a slower build to success and financial stability for the business.

That's why it's OFTEN a good idea to seek outside financing, especially when you go about it smartly.

And there are also moments when a small business needs to find financing for a particular growth strategy.

But again -- there are smart ways to do this ... and not so smart. The local bank is always an option, but they often require a personal guarantee.

Another option is to surrender some equity.

My Thoughts On Using Your Company’s Equity To Raise Funds

Let me begin by saying that these issues are ones we work on directly with many of our business clients. Financing is never an easy topic to discuss, but it can pay off when approached with both eyes open.

So here are some options for you to consider.

1. Investment Companies

Do you mean those exist for small businesses? Absolutely, they do.

And it's the government who stepped up to offer investment company services for the success of individuals like you and me.

The Small Business Administration (SBA) licenses the initiative, Small Business Investment Companies (SBIC), which provides funding for small companies throughout the country. As it's grown in popularity, the funding request has become more competitive. But it's still worth looking into as you get off the ground and grow.

2. Angel Investors

This form of financing is pretty hard to forecast.

But these kinds of companies and investors usually seek a high return for their "gift" to the early stages of any company or idea. Angel investing differs from Venture Capital Financing (VC), a method we'll look at in-depth on another day, in that Angel investing might comprise one's personal funds as a contribution, as opposed to VC which does not.

The Angel Investment Network will provide some simple steps to get started and will point you in the right direction as far as resources and opportunities to fundraise.

3. Mezzanine Fundraising

The key to Mezzanine Fundraising is "Debt + Equity".

In this instance, business owners borrow a "mezzanine loan" with the expectation that a business owner will repay the loan, AND offer equity in the business moving forward.

This form of financing is attractive to investors because it goes beyond their loan being repaid – it's especially helpful if the investor believes in the business to invest more than once, at a later date, than just the beginning stages of business.

4. Royalty Financing

This is not particularly relevant for REIs, but it is good to be aware of it. For businesses with a dynamite product, Royalty Financing might be the way to go.

Before this kind of investment takes place, one needs to prove steady sales, over an extended period of time, before the investor will commit. You see this kind of investment on Shark Tank all the time. (Never too late to submit your "my-idea-is-better-than-that" dream).

There you have it – four outside financing options, not including a bank.

And although the financing side of any business is a daunting task, please know that there are people and companies out there who want to support small businesses. It's just a matter of seeking them out and asking for a little help (which isn't always a bad thing).

Speaking of help . . . please know that I'm just a call away to start the conversation of growth for your business.

I'm grateful for our chance to serve you and your real estate business through this weekly blog -- and we are dedicated to its success.

BE THE ROAR not the echo®

Feel free to forward this article to a business associate or client you know who could benefit from this blog.

Warmly, Janet