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Business Needs Cash? Royalty-Based Financing Can be an Option April 8, 2010

Posted by Arieh M. Flemenbaum in Banking/Financial, Business, Business Law, Business loans, Business Start-ups, Chicago Business.
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Your business needs cash to grow, but finding financing is still very challenging. Banks are still slow to fund new business loans and venture capitalists have been very selective.  There are several options and alternatives out there, but you have to be a bit creative (and careful to ensure there is a “right” fit).  Below are but a few of the many innovative alternatives to traditional financing and venture capital that are available.

One creative alternative is factoring or invoice/account receivables financing.  While this type of financing is not new, the industries targeted by the factoring companies has expanded and the factoring terms have changed dramatically (making them more accessible and affordable). One example is factoring for the construction industry. Factoring companies have traditionally not served this industry, but we have seen factoring companies offer non-recourse account receivables financing and other credit services to contractors and suppliers (at reasonable rates).

Another option that has seen increased attention lately is royalty-based financing. VentureBeat has a fascinating article on royalty-based financing. The article does a very good job of  reviewing the pros and cons of this type of financing and identifies several of the types of businesses that have successfully used royalty-based financing. To read the full article go to VentureBeat’s Entrepreneur’s Corner at: http://wp.me/pPijr-1ber

We have also seen an uptick in the leveraging of internal capital resources and self-financing. At times it is easier for a shareholder to obtain financing than his/her business. In these cases, it may be possible to obtain a “personal” loan and structure a shareholder loan to the company.  Many clients have raised capital by selling a minority stake in their business or selling options to employees.  The business can benefit not only from the needed capital, but these transactions are an opportunity to secure the loyalty of key employees.  Also, with a stake in the company, the employees have more of an incentive to help the business succeed.

Having experienced, knowledgeable  and creative professionals (i.e., a good business lawyer and accountant)  may help you explore these alternatives and help you find other options that fit your business needs. For information on how the business lawyers at Griffith & Jacobson, LLC can help your business find financing, contact Arieh M. Flemenbaum (312-236-8110 or at amf@gjlaw.com).

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