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What are the Best Tips for Private Placement Financing?

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  • Written By: Kristie Lorette
  • Edited By: O. Wallace
  • Last Modified Date: 18 September 2016
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Establishing private placement financing is an advanced form of obtaining funds for business ventures. Because of the complexity of these deals, it is wise to handle the transactions by following a few of the top tips for private placement financing. Private placement financing is a type of funding that businesses and corporations use as a source of funds.

Private placements typically come from individual investors rather than from a bank or commercial lender. The funds that a private investor invests in a company can be used to expand sales, expand into new markets or seed money to start operations. The money that comes from private placement financing tends to give the investor ownership rights to the business by issuing stocks or bonds to the private investor in exchange for the money that is invested in the company.

The best starting point for private placement financing is to enlist an attorney to help with the deal. An attorney helps the business to write a compelling proposal to approach the private investors in the first place. Second, an attorney ensures that all of the legal matters are attended to before a business enters into an agreement to borrow private funds from an investor.

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Beyond an attorney, it is wise to enlist the assistance and advice of at least two other professionals. First, a certified public account or CPA helps the business to ensure that the company’s financials are in order. A CPA can also help the attorney to create the required financials the attorney needs to make the presentation that convinces the investor to invest their money in the company. The second professional is an investment advisor to work out the details of the stock or bond issuance.

Another tip is to create an exit plan. Working with the attorney, CPA and possibly an investment advisor, the business should also have a plan up-front for repaying the investor. Part of the plan is presented to the investor because investors like to know how investing their money in the business translates as a return to them. Second, the plan allows the business to evaluate how and when it will repay the investor and regain control of the ownership of the business.

Private placement financing tends to create complex borrowing situations for businesses. These types of financing do allow businesses to obtain the capital required to fit its needs in a shorter timeframe than traditional financing. The legalities and financials of the deals, however, do require businesses to turn to professionals to ensure that the deals are rock solid and lawsuit-proof.

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