The one constant in the life of a(ny)  small to medium-sized business will be the need for a cash infusion to jump start sales, expand into new markets, or continue to sustain growth. While there are multitudes of financing sources of funding available to small business owners, each source has its limitations and requirements.

For instance, commercial bank loans are often intended for businesses that have been around and have shown a steady stream of profitability. Private placements are an attractive alternative for growing companies.

What is Private Placement?

Private placement or private investment capital is money invested in your company usually from private investors in the form of stocks and sometimes bonds. In many jurisdictions, private placement often does not need to be registered with the applicable securities regulatory authorities. Every year billions are issued in the private placement market. As good as it sounds; the majority of those dollars came from pension funds, investment pools, banks and insurance companies. However, private placement does exist for the small business owner and is often less expensive and easier than taking your company public.

Benefits of Private Placement

• High degree of flexibility in amount of financing ranging from 100 thousand to 10-20 million with combinations of debt, equity, or debt and equity capital.
• Investors are more patient than venture capitalists, often seeking 10 to 20% return on investments over a longer term of 5 to 10 years.
• Much lower costs than approaching venture capitalists or selling the stock to the public as an IPO (Initial Public Offering).
• Quicker form of raising money than usual venture capital markets.

Who is a Candidate for Private Stock Offerings?

The ideal small business candidate is a company in the third stage of finance and is looking for growth or expansion funding. Small business owners might think private placement applies to start-ups when your company has completed product development, conducted a market-feasibility study and business planning but start-up funding often comes from angel investors.

Where to Find Private Placements?

The money from private placements will come from qualified investors and include:
• High net worth individuals and/or households.
• venture funds, some banks and other institutions.
• (investment) bankers, attorneys, and accountants who can network your small business with a   private investor.

What is required for Private Placements?

• A sound business plan
• A private placement memorandum (PPM) disclosing the full facts of the investment and business
• A law firm or lawyer experienced in private placements.
• A private placement network or exchange

With the limited infusion of capital into the stock market, the private investor market is an attractive alternative for investors and small businesses. Private placement offers a viable form of business financing without the constraints of taking a company public and conceding control.

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