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Tuesday, April 12, 2011

Ways to acquire investment capital during business down-cycles

During a business down-cycle, investors are more likely to be cautious and weary of business opportunities requiring investment capitalization including personal business financing. This is because it is more likely than not business revenue is in a down trend thereby increasing the potential of locking money into stagnant or negative returns. Of course not every business deal is that simple and opportunities to make money in down markets do exist or can be offset by higher medium to longer-term capital gains.

Investor specialties


Investment capital sources
Business history during down-cycles affects financing options
Conservative investors are the least likely to be  willing to invest during a business down-turn. Angel investors or venture capitalists with a taste for risk and an eye for potential are better prospects. These kind of investors can be found independently or through consulting firms such CB Insights and may have conditional business sectors and objectives in mind.

Utilize an underwriter


Investment underwriters can bring experience, and contacts that would otherwise be inaccessible when searching for willing investors during a lull in business activity. Private and public investment underwriters can help business owners and managers navigate regulatory requirements and  investment products to better suit capital infusion objectives and managerial goals. Investment banks can be found through referrals or public open directories such as DMOZ.

Consider mezzanine capital


Mezzanine capital adjusts the type of financing in a way that may be preferable to investors willing to invest during periods of lower cash-flow. This is because mezzanine financing may give investors greater income earning opportunities through higher rates and expanded options such as convertible bonds with high interest rates.

Emphasize low risk


If investors are afraid to invest because of a lack of business credit history or limited financial performance, low risk debt instruments may be the way to go. Low risk investments give investors first priority in terms of debt repayment arising from corporate insolvency and may also provide a fixed rate of return to the investor seeking to achieve more diversification.

Utilize business network


Business networks that can tap into private financing can be a way to avoid lengthy bank lending procedures. These investors may offer a more private investment with alternative negotiation options. For example, an investment may include a less tangible collateral such as a client network or a free consulting expertise.

Exhibit financial strength


One of the strongest way to find willing investors during a business down-cycle is having a strong business to start with. Moreover, a good business model that has a proven track record should have a reasonable chance of obtaining investors even during a recession. This type of investment capital is driven by earnings consistent growth and favorable growth forecasts.

Finding willing investors during a recession can be more challenging during the low end of a business cycle. Nevertheless, with strong proposals, and a proven business model, finding investors during a periods of less revenue doesn't have to be impossible. Naturally the healthier a businesses financial position is, the easier it will be to attract investment. Even so, fixed rates of returns and appealing loan terms combined with the investment acquisition techniques in this article can help facilitate business capitalization.

Sources:

1. http://bit.ly/aFUKV2 (CB Insights)
2. http://bit.ly/dt1mjl (Investopedia)
3. http://bit.ly/9alG2j (DMOZ)

Image license: 401(K) 2012; CC BY-S.A. 2.0

1 comment:

  1. Even so, fixed rates of returns IFA news and appealing loan terms combined with the investment acquisition techniques in this article can help facilitate business capitalization.

    ReplyDelete