Typically, RCP will recommend and arrange financing which results in the lowest cost of capital, and retain the largest ownership for current owners or buyers of a given business. There are also a number of government guaranteed sources of funds for different business opportunities, funds up to $25 million from a single source, which take most of the guarantee off the business owner, and can often result in lower interest rates.
Rowell Capital Partners Funding size: $2 million - $150 million
Funding Sources:
Debt Financing. Range: $3 - 25 million for govt guaranteed, $3 - 70 mil leveraged capital. Debt financing is usually the cheapest way to finance an company or project, and allows the owner to retain the most ownership and can prevent ownership from giving up control. Debt financing notes can have terms of up to or beyond 10 years, and can be arranged as interest only payments for typically the first year. Debt financing is limited by the amount a company's cash flow can afford. In certain circumstances, some banks will lend on a multiple of cash flow, not supported for assets as in a typical bank lending model.
Government Guaranteed Notes. Range: $250k - $25 million. There are Federal and state programs available which make loan guarantees under certain circumstances. These guarantees make your loan request do-able when the request cannot be justified by the particular institution's lending model. This is the most desirable source of funds since your loan is guaranteed by the government, and can be at a lower interest rate. The federal and state governments have determined the trickle down benefits of new job creation and private sector business growth, and found it to be a cost effective hedge to guarantee notes. Notes take 3 mo. - 1 year to process depending on circumstances.
Venture (VC) Funds. $1 mil - $70 VC funds or private equity money can be fairly pricey, and can often be the only means a entrepreneur or business owner can finance his company through growth, since his cash flow today does not justify debt financing his growth over the next 12 months. Although, there are not monthly interest payments as in debt financing, often VCs will require quarterly payments. VCs may also require funding through a note convertible on some event into a type of stock. VC funds like to see their exit in 3-6 years and like to expect a 10x return on their investment, which therefore equates to an annualized interest rate of 30%. Some private equity money today is looking at longer investment periods. VCs typically don't want to be hands-on in their investment companies, look for 20-30% ownership, or less, ask for a seat or 2 on the board of directors, and will only invest if the company has a professional management team or department managers who can manage their departments autonomously. They will have bench marks in place for the company to meet or beat, and if you do not make your bench marks, they will step in and take control. This could mean setting more benchmarks, changing a strategy, replacement of management, or something as extreme as putting the business up for sale or liquidation of assets.
Angel Investors. Range: $100k - 500k per Angel. Angels typically look for early stage deals where they get in on the bottom floor and ride to a bigger return. Expect the Angel to get a board seat. Most angels are experienced successful entrepreneurs, and although they may not care to understand the day-to-day details of your particular business or industry, be assured that they understand the big picture, and they will have a well experienced opinion and plan. As the business owner, you may see things from a small business perspective, but they probably see things from a growing and middle market perspective. They are more likely to look at cash flow planning, developing management who can run their department without you making all the decisions for them, and other things necessary for your business to transition from a small entrepreneur company to a successful growth company.
Mezzanine Funds. Range: Varies. Mezzanine money is expensive debt financing. Typical interest rates run 12-18%. Mezzanine funding only makes sense if you turn your capital quickly, so the Mezzanine note is paid off within a few months. Mezzanine financing often has bench marks with triggers to give the lender control over the business if you don't meet objectives.
