One of the most common problems among start-up or small companies is access to financing. Normal bank financing is usually inaccessible to young companies possessing little or no history or requires personal guarantees from the principals of the company. If your company is facing this problem one solution may be to obtain capital or debt financing from private investors. Through such offerings your company can raise thousands to millions of dollars, providing short-term (usually 1-3 years) relief while your company gets on its feet and establishes the operating history required in order to obtain more traditional financing such as bank lines of credit.
Before undertaking such private financing, however, you will need to ensure that you follow state and federal securities laws regulating the offer and sale of securities. Although securities laws may be intimidating, both Minnesota and US law seek to encourage business growth by providing exemptions to the more-strenuous reporting requirements, making small securities offerings relatively straightforward. Small offerings are regulated by the Securities Act of 1933 and certain federal regulations promulgated under the Act, particularly Regulation A and Regulation D. In Minnesota the offer and sale of securities is governed by Minnesota Statutes Section 80A and Minnesota Rules part 2875.
Depending on a number of factors your offering may or may not require the filing of your offering documents with the federal (Securities and Exchange Commission) and state (in Minnesota, the Department of Commerce) authorities. These factors include the amount of money to be raised, the number of investors anticipated, whether the investors are from Minnesota alone or from different states, and how sophisticated and/or wealthy the investors are.
In offering equity or debt financing it is important to draft certain documents that set forth the terms of the offering and disclose information about the company and the offering. The documents normally created in conjunction with small company offerings are a private placement memorandum, encompassing both detailed information about the company as well as the details and risk factors associated with the investment, a subscription agreement, the contract containing the terms and conditions of the sale, and, in the case of debt securities, a promissory note, the document embodying the loan.
Achieving success in a small business requires the diligent application of all available resources. The offering of securities may prove a useful resource for your company’s financing needs. For questions about investment offerings for your business, please call Boris Parker at (612) 355-2201 for a free telephone consultation.