How Do You Raise Capital for an Expansion? Five Guidelines

Situation: A company needs to expand to meet growing demand and has opportunities to expand in several locales. They can finance this expansion through bank loans, or by selling either a minority or majority interest in the company. How do you raise capital for an expansion?

Advice from the CEOs:

  • Minority shareholders have appeal. Just be aware that they have rights. If they own interest above a certain percentage, they gain legal rights such as the ability to force liquidation. Research this percentage, and figure out a percentage of minority ownership that will work for you. Based on this, look for a minority partner who will give you the capital to expand for ownership below this threshold.
  • Consider a hybrid solution combining a smaller loan with sale of a limited percent of the company.
  • This is a risk equation.
    • The loan option is risk / reward for long term profit. You may have to secure the loan with personal assets.
    • On the other hand, selling a minority interest could set you up for life.
    • Look at both options, plus your personal goals and decide which combination of risk, reward and personal security fits you best.
  • One sale option is a phased buy out.
    • Example: sell 30% now, with options under conditions that you accept, to buy a larger share of your company later.
    • Continue to involve the key stakeholders in these discussions.
  • Assure that you secure your own future, and then secure the future of other family members.

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