How to Raise Capital Without Losing Equity Ownership

Posted by Greater Midwest Financial Group on Nov 14, 2022 1:00:00 PM

A Person Arranging Cash Money on Wooden Table

Acquiring additional capital looks different today than it did in decades past. With more options available, raising capital is easier and more accessible. If you’re looking to support organic growth, acquire new holdings, transfer ownership, or pay dividends, capital may be the answer.

But what if you want to raise capital without giving up a percentage of your company? Here are three potential avenues to new capital that don’t require you to give up equity ownership.

Not sure which option is right for you? Contact Greater Midwest Financial Group for individual guidance and assistance in raising capital for a small business.

3 Options for Raising Capital While Maintaining Ownership

1. Cash-Flow Borrowing

In previous decades, borrowing was limited by the hard assets a company could list as collateral. These typically included inventory, property, equipment, and receivables. Now, however, lenders look more closely at a company’s operations, and the growth and predictability of its profits.

To assess profit growth and potential, lenders generally look at processes, strategies, technology, systems, and people to determine a company’s health. Analyses are not based on collateral, but on earnings before income, taxes, depreciation and amortization, or EBITDA.

One factor to consider: these loans tend to carry a slightly higher interest rate. However, if you’re looking for capital but don’t have physical collateral, this might be the right option for your business.

2. Private-Capital Markets

Commercial banks aren’t the only option anymore, especially for companies seeking cash-flow borrowing, as detailed above. Alternative, non-bank commercial landers include as business development companies, insurance companies, credit opportunity funds, or family offices.

These non-bank commercial lenders, also known as direct lenders, tend to be more focused on cash flow than collateral. And with more lender options available, you’re more likely to get a competitive deal.

3. Dividend-Levered Recapitalization

In a dividend-levered recap, you’ll essentially borrow against your company’s future profits in order to generate large dividends.

Recaps allow company owners to balance wealth between the company and personal holdings, taking capital out of the company while maintaining existing ownership stakes and avoiding private equity fees. There are significant tax advantages with this option, and debt is usually amortized quickly.

So which option is right for your company? It depends! If you’re seeking to raise capital without losing equity, Greater Midwest Financial Group can help find the best solution for your specific needs. Contact us today to get started.

Contact a Business Financial Planner

Greater Midwest Financial Group is a financial advisor firm serving St. Paul, Minneapolis and the wider Twin Cities area. We specialize in wealth management, retirement planning, asset management and other personal finance needs.

Source: Vistage, “3 ways to tap into capital for your company’s growth

Photo by Tima Miroshnichenko

Topics: business owners