Borrowing Permanent Equity Capital

Permanent capital sometimes comes from sources other than the business

owner/manager. Considered ownership contributions, they are different from

“stockholders equity” in the traditional sense of the phrase. Small

Business Investment Companies (SBIC’s) licensed and financed by the Small

Business Administration are authorized to provide venture capital to small

business concerns. This capital may be in the form of secured and/or

unsecured loans or debt securities represented by common and preferred

stock.

Venture capital, another source of equity capital, is extremely difficult

to define; however, it is high risk capital offered with the principal

objective of earning capital gains for the investor. While venture

capitalists are usually prepared to wait longer than the average investor

for a profitable return, they usually expect in excess of 15 percent return

on their investment. Often they expect to take an active part in

determining the objectives of the business. These investors may also assist

the small business owner/manager by providing experienced guidance in

marketing, product ideas, and additional financing alternatives as the

business develops. Even though turning to venture capital may create more

bosses, their advice could be as valuable as the money they lend. Be aware,

however, that venture capitalists are looking for businesses with real

potential for growth and for future sales in the millions of dollars.

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