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Best way to raise $5 million?

3,595 Views | 23 Replies | Last: 6 yr ago by moorehead01
the4aces
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My business partner and I have built up and equipment leasing business that currently has ~100k/month in revenue.

We (ourselves + friends and family) have roughly $2 million invested in the business. My current forecasting, without any additional marketing, shows that we will need $5 million to buy additional equipment next year.

The bank will probably give us $500k-$1million credit line. What other options do I have beyond that?

Thanks!

Ryan
aggie028
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Give someone equity in the company. What kind of business is it?
CS78
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And find another bank. Should be lots of local banks willing to do $1-$2mil in loans if your numbers are good.
IrishTxAggie
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https://texags.com/forums/57/topics/2895573
dlp3719
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Get the people selling you the equipment to finance most of it.
CashMoneyYo
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Sell your company.
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libertyag
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dlp3719 said:

Get the people selling you the equipment to finance most of it.
This. I have a lot of clients who buy tractor units, bulldozers, excavators, etc. and hardly ever see any bank loans on them. They finance through the company they buy the equipment from. Usually 0% interest, don't have to do anywhere near the amount of paperwork, don't have to provide financial statements on the business nor do they have to do personal financial statements.
the4aces
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Thank you for the information.

The businesses we buy the equipment from are small businesses. They will not be able to finance us.

Let's assume I can get a bank to give me a $2 million line of credit. That still leaves a $3 million need. I was thinking about trying to raise 2nd lien debt @10-12%, but I have no idea how to do that.

Thoughts?
RG20
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Care to explain?
Long Live Sully
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the4aces said:

Thank you for the information.

The businesses we buy the equipment from are small businesses. They will not be able to finance us.

Let's assume I can get a bank to give me a $2 million line of credit. That still leaves a $3 million need. I was thinking about trying to raise 2nd lien debt @10-12%, but I have no idea how to do that.

Thoughts?
Approach GE Capital or someone like that.

And do you earn more than 10-12% on your assets?
Cow Hop Ag and Bayside both say they are conservatives.
Bayside admits to being pro choice.
Bayside calls Cow Hop Ag a liberal because he's a moral man.

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texags82
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What kind of equipment do you rent?
khkman22
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Why do you "need" to purchase $5 million next year? Why not take it slower and purchase half next year and the other half the following year?

The $2 million already invested, is that all in equipment or do you have less equipment cost than that currently? Do you have any other debt on current equipment?

Just curious what is driving your projections and how that compares with what you currently have. How long has this business been in operation?
helloag99
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I guess industrial or drilling tool rental
the4aces
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We can not slow down as our suppliers would then go to a different finance company.

We have more than $2 million deployed now. That is just the investment we have put in.

We could afford to pay 10% interest, but would prefer to pay lower.

This is not oil and gas related.

Any ideas on how to raise capital?

Thanks!
themissinglink
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If you can't take it out of net working capital (such as supplier financing or speeding up customer payments), cash from operations won't generate enough to cover the expenditure, and additional debt financing isn't an option, you need to bring in new business partners (as the first reply mentioned).

Assuming this is a small, volatile business, they will likely be expecting greater than a 10% return.
wessimo
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Have you looked into P2P lending platforms (i.e. Lending Club, Funding Circle)? None of them will lend $5M but could help supplement your bank loan.
Diggity
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what kind of growth projections do you have?

Is this a business worth sinking that much money into?
ChoppinDs40
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Lots of funny answers on here.

Put together a pitch book and a robust forecast model. Contact every bank in your area and be willing to send that pitchbook and forecast model with no in-person meeting. They know people as well.

Explore hiring an investment banker who has contacts and can create a market for your ask. If it is truly a business worth investing in, shouldn't be a problem. However, looking at your numbers, I think underwriting the figures you've provided look damn near impossible from a lender's standpoint.

$1.2MM of revenue and you're hoping to raise over 3 turns of that? What are your margins? 30% EBITDA would be over 10x turns of capital raised - that is NOT coming from a bank, no matter what industry you're in.

Your better bet is getting in touch with angel investors, seed funding, family offices or smaller mez/junior debt guys. This will likely not come in 1 slug.

Get creative with vendors and customers. Ask for an annual upfront payment from your customers in exchange for a discount. Hell, ask THEM if they want to invest or provide a note.

Your suppliers can't provide financing? That's a risk to me that they're not that stable. Explore diversifying your supplier base. There are also 3rd party financiers out there that solely focus on equipment financing as an intermediary.
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chilimuybueno
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Good response.
cohibasymas
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OP - please shoot my friend Nathan Green an email. Nathan is an experienced fractional CFO who assists with challenges such as you're experiencing (preparing for capital raise, looking for capital, etc.). He can be reached at nathan at spiritadvisorsgroup dot com or by phone at nine seven nine, five nine five, six eight one one. I gave him a heads up you might reach out (you might mention you're from TexAgs).

dc509
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Do you have any contacts in private equity? $5 million isn't going to be big enough for their institutional money, but sometimes the partners can be interested in various investments personally.
the4aces
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cohibasymas - I reached out to Nathan. Thank you for the lead!

dc509 - good idea. Unfortunately not a lot of contacts in that area that do not have a specific investment niche.

Everyone else - Thank you for the advice. Keep it coming!

Thanks!

moorehead01
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Where are you located and how many / what size banks (community, regional, etc) have you spoken to? What are you/they basing the loan amounts on (advance rate on the equipment, % of equity capital, solely on relationships with the principals involved, etc)?

Sometimes it is about getting in touch with the right sources.

This could also be of interest to mezz debt / equity providers, but as someone said above, most are going to want returns north of 10%. Interested in hearing more.
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