Forums: Discussions for entrepreneurs and small business.

We have a client who is in the business of acquiring raw materials, refining, and shipping finished products on a large scale to corporate customers (hardware such as door handles and other products).  They`ve grown to the point where they need to expand, which would require the purchase of a warehouse.  The company is cash strapped at the moment and does not have the resources to fund the expansion stage (which they`ve ballparked around $500,000).

The business is nearly one year old.

What options do they have?

If expansion is the real problem why don`t they just rent a larger building at this time. Why do they need to buy one? If they have a good business plan and are well on their way they could go to the SBA, and borrow the money to purchase the building. I think they would need 10 to 20% down. I would go to Score or the SBA in your area explain your situation and see if they could help you. Another thing I would do is start building a solid relationship with your banker. Take them to lunch and explain how wonderful things are and you would like them to help you go to the next level. Even if you are accepted by the SBA you will need a bank because the SBA only guaranties the loans.

Winston

It sounds like they are a perfect candidate for either a Private Placement Memorandum (PPM) or a Private Placement Offering (PPO). The correct one to use depends on what type of entity they are. If you`re not familiar with either, they are basically a document that allows the company to solicit investment from private investors. I am involved in both writing them and getting them funded. Anyway, as long as you are raising under $1 million (which it sounds like they are) then there is a certain exemption that can be used that allows the PPM or PPO to solicit to both out of state and unaccredited investors - which is huge. You obviously have to give up some of your business to do this...how much depends on how you structure it. When I provide this service, I get the client as much capital as possible while selling the least possible amount to investors (it still has to be a fair deal for the investors or the money won`t get raised). The company doesn`t have to give up any management control as the investors are passive and don`t have anything to do with the actual business. I don`t think it`s a big issue that the company is barely a year old, it could actually be used as an advantage that they have done so well in their first year. Let me know if you`re interested in this concept. It`s what I do.

paul@zaocore.com