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Angel Investors " not Always the Best Alternative.
Today getting a small business loan is a daunting task at best " regardless if you are in the United States or Canada. Many businesses look to Angel Investors for the much needed cash injections the banks had turned them away for. But is this the Best Alternative?
Angel Investors look at deals differently than banks, or most other lenders for that matter. Their focus is to net between 5 and 10 times their initial investment in a period not to exceed 5 years. They do this by carefully plotting their exit strategy to recover their funds within the specific time period they define which can take the form of public offerings of stock, takeover or liquidating the assets of the company. What ever it takes.
Angel Investors have now increased their threshold for their ROI to a minimum of 10 times to as much as 50 times their investment because of the failure rate and the length of time that the investor will be tied into the company. When you consider the bigger picture, the effective return on investment for the Professional Angel Investor is usually around 20% to 30%.
Because of this high return on investment, Angel Financing is very expensive, but the lesser costing funds such as banks and credit unions are rarely available for new business start-ups. This is because the traditional financiers have a high threshold for accepting young companies for Business Loans.
So you are declined at the bank and you can not afford Angel Investorsnow what?
Regardless if your company is in the United States or Canada, there are options. The following is a real life situation that I was involved in to avert an Angel Investor situation. There is a company in Alberta Canada that possesses a unique product that he was planning to market across North America. He went to the usual places to inquire about financing for his business. After the banks turned him away, he spoke to a few Angel Investors. After considering their proposals he continued his search for financing when I presented him with an option called Accounts Receivable Factoring and Purchase Order Finance.
When I had initially spoken to the owner of the company, he had shipped out one large order and was about to ship out his second large order which was going to wipe out his entire inventory and he would have to wait to receive payment from the customers before he could replenish his stockbut he had several additional orders to be filled and he had no way to fill them without cash.
After I received the application from him it was about a week when he received his first advance on his new Line of Credit using Accounts Receivable Factoring and now he has the cash to make his business run more smoothly.
The moral of the story is quite simply, even if you are turned down by your bank, and you are not interested in giving your company away, there may be options to be had. Do your homework and seek alternative Commercial Finance options.
About the Author Wade Henderson is a recognized Expert in the Business Finance World with over 13 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Business Finance Website to put his experience to work for you.
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