Ways to Fund a Business Venture
Startup financing turns entrepreneurial ideas into real business.
March 22, 2018
From an innovative business idea to supporting a child’s entrepreneurial spirit, startup financing is necessary to turn dreams into realities. Traditional banks may consider starting a business too risky, and there’s a lot of competition for venture capital. So you may need to rely on alternative funding.
There are several alternatives to consider. These include a margin* loan or a securities based line of credit (SBLC)*, both of which are collateralized by securities in your brokerage accounts. More important, these borrowing solutions allow your financial plan to keep working as you and your advisor intended. Here’s a look at some options.
Benefits: No setup fees; won’t disrupt your portfolio
Considerations: May not be suitable for all; requires a minimum withdrawal amount
Family and Friends
Document your agreement and note perks or equity your investors are entitled to.
Benefits: Convenient and available quickly; simplified contract
Considerations: Potential conflict if business fails and money lost; added pressure; funds may be limited
Affluent people who provide capital in exchange for equity.
Benefits: Substantial funding may be available; access to business coaching and insight
Considerations: May be hard to find depending on your specific business interest; managing divergent interests for the business may be challenging; more contractual strings
Some business grants are available through state and local programs, nonprofit organizations and other groups. Such grants may require you to match funds or combine the grant with other forms of financing, such as a loan.
Benefits: Access to capital at low cost
Considerations: Use of funds strictly defined and limited to certain kinds of business ventures
Put down on paper your ideas for a new business and begin to work on your business plan. Discuss with your advisor how to best finance your business idea and how a business will impact your financial plan. Additionally, consult with your lawyer and tax professional and keep them apprised of your intentions and progress
A Margin account or Securities Based Line of Credit (SBLC) may not be suitable for all clients and investors. The proceeds from an SBLC cannot be used to purchase or carry margin securities. Raymond James Bank does not accept RJF stock as pledged securities towards and SBLC. Borrowing on an SBLC or Margin account using securities as collateral may involve a high degree of risk including unintended tax consequences and the possible need to sell your holding, which may lead to a significant impact on long-term investment goals. An investor can lose more funds than he or she deposited in the account. Market conditions can magnify any potential for loss. If the market turns against the client, he or she may be required to quickly deposit additional securities and/or cash in the account(s) or pay down the loan to avoid liquidation. The securities in the Pledged Account(s) may be sold to meet the Collateral or Margin Calls (Calls) and the firm can sell the client’s securities without contacting them. Clients and investors are not entitled to choose which securities or other assets in his or her account are liquidated or sold to meet a Call.
The firm can increase its maintenance requirements at any time and is not required to provide advance written notice. Clients and investors are not entitled to an extension of time on Calls. Increased interest rates could also affect LIBOR rates that apply to your SBLC or Margin account causing the cost of the credit line to increase significantly. The interest rates charged for an SBLC are determined by the market value of pledged assets and the net value of the client’s Capital Access account. The interest rates charged on Margin loans are determined by the amount borrowed. Please visit sec.gov/investor/pubs/margin.htm for additional information. Securities Based Line of Credit provided by Raymond James Bank, N.A., Raymond James & Associates, Inc. and Raymond Jmaes Financial Services, Inc. are affiliated with Raymond James Bank, N.A., a federally chartered national bank. Products, terms, and conditions subject to change. Subject to standard credit criteria.