After receiving the necessary documents (application form and project presentation), our team will try to review your request as soon as possible, and leading experts will offer the best options for project funding.
Significant funds will be required for registering a company in the United States, obtaining official permits and licenses, implementing large investment projects, hiring employees, renting premises, purchasing land and other purposes.
Financing a business in the United States can be challenging, especially when it comes to capital-intensive investment projects with a strong innovation component and a high level of risk.
ESFC, an international finance company with over 20 years of investment experience, is ready to help finance large projects in the United States.
We offer large long-term loans, organize project finance, create and manage SPVs, provide financial modeling services.
Our experienced team guarantees comprehensive support to our clients at all stages of business development.
Funding for large companies in the USA: choosing a source
There are several ways to finance a business in the United States.The most widespread ways to raise capital are by issuing stocks and bonds, as well as obtaining a bank loan.
Venture financing is less commonly used, as well as various mezzanine financing instruments for MBO deals, and so on.
Not all of the above methods of financing a business are available to every business. To receive funding, the founder (owner) of the company must properly prepare both the company itself and the entire process of raising capital.
Although American legislation is generally liberal, high competition for capital between companies dictates tough conditions for raising funds. Professional support and financial consulting services are in great demand in the United States, since many procedures are legally complex and require many conditions to be met.
Preparing for company financing
Preparatory activities should begin even a few months before the planned date of the project implementation.This is because it can take a long time to complete certain optimization steps. However, a lot depends on the specifics of the company or industry. In all areas, working with trusted advisors specializing in investment, finance, accounting and legal matters should be key.
Activities aimed at preparing the company for raising capital include:
• Comprehensive analysis of the project and its business environment.
• Planning the necessary optimization processes and a schedule for their implementation.
• Professional development of a business plan and contract documentation.
The financial analysis required to raise finance should include all factors that affect profit (for example, net income, operating income, EBIT or EBITDA).
The company must also prepare corporate documents and contracts, financial statements and other documents for potential investors and creditors to identify risks and take optimization measures.
Correctly carried out identification and optimization of risks will positively affect the assessment of the project and the effectiveness of the company's financing. Funding for start-up companies is always combined with analysis of its business model and validation in the market (minimum viable product).
Regardless of what type of business financing a company is looking for, it is always necessary to prepare detailed investment materials for its future partners. The attitude of American investors to such materials is very reverent, so this element can be called an important stage in preparing for financing. These materials differ depending on the specific type of financing.
Financial investors
An important role in the funding of business in the United States is played by the so-called financial investors.These are venture capital funds, private equity funds or private investors (business angels or a consortium of investors). Finding the right investors can be a challenge as the highly competitive US capital market seeks the best solutions and investment opportunities.
To conduct the process of finding an investor, company representatives should arm themselves with at least three investment materials. This is an investment teaser, a presentation for an investor, and a financial model as a reflection of the implementation of the adopted business strategy.
A prudent investor will never agree to finance a company if he cannot thoroughly understand its business model, market environment and how to achieve its goals.
The materials must convince the investor that the company's potential is worth the risk.
Our experience in financing a business in the United States confirms that high quality investment materials significantly increase the likelihood of success in obtaining financing for a company.
In the classic case, the investor usually does not require any guarantees. The investor invests in the project and assumes the risk, expecting to increase the company's business reputation in the future and / or share in the profits.
Bonds vs loans for US businesses
In American corporate finance practice, bonds and loans are among the most widely used instruments.These instruments are very different from each other, offering different opportunities for funding participants.
The first difference is that a loan is a simpler instrument for a company than a bond. For this reason, bonds are most often used in situations where financing involves a large company / project and significant investment costs. Another difference between these instruments is the way in which the principal and interest are paid off. In the case of bonds, the principal is paid off at the end of a specified period and interest is paid regularly in shorter periods.
For example, in the case of a bond with a maturity of 3 years, the principal is paid at the end of the third year, and the interest is paid quarterly or semi-annually.
A business loan can be provided with or without collateral. The loan may be secured, inter alia, by real estate and equipment used in production, stocks of raw materials or other liquid assets at the disposal of the borrower at the time of signing the loan agreement.
In the case of a secured loan, the analysis of the company and its potential is secondary.
The lender pays particular attention to the reliability of cash flow forecasts. Financing a business with an unsecured loan carries a higher risk for the lender than with a secured loan.
A wise lender should conduct a detailed analysis of the company to which he intends to lend money. This means that the lender's expectations from the investment materials presented will be similar to those of the investor purchasing the shares.
The process of seeking financing for a company in the form of an unsecured loan is similar to raising capital through stocks or bonds. ESFC Investment Group is ready to provide your business with comprehensive assistance in finding sources of financing.
Factors influencing the choice of company financing
Early stage companies have limited funding choices.Most often, bank lending in the United States is not available to them.
Basically, creditors' doubts are related to the short life of the company and insufficient reliability.
For these types of companies, funding is most often available only through venture funds and private investors (business angels). In terms of loans, some investors use equity-convertible loans.
As the company grows and investment risk decreases, the number of business financing options increases. Lenders take into account the company's financial health, organizational structure, operating history, and a number of other factors.
Also, an important role in the choice of methods of financing a company is played by its structure.
Equity financing is available for limited liability companies and joint stock companies.
The bank's requirements for an individual entrepreneur and a limited liability company will also differ. In this case, it is impossible to say unequivocally which form of business is more expedient.
In practice, it is much easier for large companies with a long operating history to obtain a long-term loan in the American financial market compared to young companies or individual entrepreneurs.
Companies in difficult financial situations have significantly limited funding opportunities.
Most often, in such a situation, only financing of the enterprise is available through the issue of shares or shares, as well as a loan secured by real estate or other stable asset.
Finally, borrowing must be based on a sound business model. Alexander Osterwalder and Yves Pigner (Building business models) point out that the building blocks of a business model relate to four main business areas, such as customers, offering (product, service), infrastructure and the company's financial health.
A summary of the business model should be presented in an investment teaser, and in detail in the form of a spreadsheet (financial model). The search for business financing should not begin until a detailed operating model has been developed and tested for each of the above areas.
Our finance team provides professional financial modeling services.
We will help you build a business plan and prepare all the necessary documentation for raising funds in the United States.
Large bank loans for business development in the USA
Business loans are one of the most commonly used ways to finance large companies and investment projects in the United States.Obtaining a bank loan for American companies in practice is usually a complex process that requires the preparation of many documents and multi-stage negotiations with potential lenders. Large loans are rarely provided to young companies that have been operating for less than 1-2 years.
The United States has a well-developed lending market. Many financial institutions are ready to offer large long-term loans for businesses with an adequate business plan and good financial prospects for the industry.
Banks providing business loans in the United States include Bank of America, Citibank, JPMorgan Chase, U.S. Bank, Wells Fargo and other well-known brands.
Possible business lending purposes include the following:
• Purchase of an existing business.
• Expansion or modernization of production.
• Purchase of real estate / equipment.
• Refinancing / debt consolidation.
• Replenishment of working capital, etc.
A significant problem that complicates obtaining a loan from an American bank is the lack of profit in the previous fiscal year and poor financial performance in general.
For most banks, even a small loss is unacceptable, which is why such risky deals are usually not approved. Of course, a lot depends on the attractiveness of a particular project, the situation in the company and its industry.
However, the most significant problem hindering access to credit is the provision of appropriate collateral by the potential borrower. For large companies with a long operating history and sufficient income, the bank will agree to a softer security policy, but collateral will also be required.
Financing a business in the United States with loans requires, among other things, providing the bank with information about the company's current business situation and market conditions, as well as financial forecasts. The amount of information and the level of its detailing will depend on the specifics of the company, industry and loan amount.
If you would like to receive financing for a large project without collateral, our finance team will help you develop an individual project finance (PF) model. Our schemes allow clients to attract large long-term loans against the future cash flows of a specific investment project. We are also ready to help you with the establishment and management of SPVs, fundraising and project management at any stage.
Benefits of a loan for funding a company
The main advantages of a loan include the relative ease of obtaining, which is mainly reduced to the provision of financial documentation and the conclusion of a loan agreement.Unlike project finance schemes, traditional bank lending usually does not require lengthy multilateral negotiations and complex contractual structures.
The main advantages of a business loan in the USA:
• Ease of obtaining borrowed funds and quick access to financing.
• Possibility of attracting large sums up to several tens of millions of dollars.
• Flexible terms of lending depending on the needs of the business.
• Clear regulation of credit activity by American laws.
ESFC Investment Group helps clients to obtain large loans for business in the United States and other countries, working closely with partner banks and other financial institutions.
We are ready to offer a loan of $ 50 million or more for up to 20 years to help your company implement a new investment project or refinance debts.
Secured business loan
The loan agreement requires the solution of several basic issues, including the parties to the agreement (borrower and lender), the loan amount, interest rate, terms and conditions for repayment of borrowed funds, as well as the method of repayment of principal and interest.There can be significant differences between secured and unsecured loans, with the first type of loans prevailing in the practice of financing large business in the United States.
A secured loan gives the sponsor of the project an additional guarantee of repayment of the debt. In case of non-repayment of the main part of the loan with interest, the lender sells collateral to recover the losses incurred.
Due to the increased risk, the interest rate on an unsecured loan will usually be higher than on a secured loan. But in practice, a company in good financial health may receive a lower interest rate on an unsecured loan than a company in a worse situation that took out a secured loan.
The loan can be secured, inter alia, by real estate, equipment or machinery used in production, as well as shares and bonds of listed companies.
Each form of collateral has advantages and disadvantages from the point of view of the individual or legal entity that provided the loan.
Real estate in the United States is considered the most reliable collateral. Equipment and machinery used in production, as well as stocks of raw materials and goods, are less important. The specifics of a particular form of assets should be analyzed on a case-by-case basis.
Without a detailed analysis of the assets, it may turn out that the sale of such an asset is difficult or requires a number of administrative approvals. As a result, this leads to a significant increase in the period of sale of the pledged property.
On the other hand, inventory-backed credit requires regular inventory checks. The inventory level is set by the parties to the transaction in the loan agreement. It is also important to consider the depreciation of stocks over time.
In the case of a secured loan, an analysis of the borrowing company and the potential of its projects is secondary.
However, much depends on the specifics of the company and the level of risk.
Unsecured business loan
Using an unsecured loan to finance a business in the United States carries a higher risk for lenders compared to secured loans.In many cases, this risk is comparable to the risk of investing in capital in the form of stocks or bonds.
Business loan is an important tool that is used in venture capital investments, that is, when financing a startup. Most often this applies to the early stages of development of a project or company in the United States. Unsecured loans can be provided by seed funds and accelerators. They invest in business using a loan that can be converted into the capital of a future company.
Unsecured business loans in the United States help many innovative industries such as electronics, IT, renewable energy sector and others to grow. If you are looking for a large loan for business development, please contact us.
Funding large companies in the United States through bond issues
Issuing bonds to finance business in the United States can be an extremely interesting alternative to conventional funding sources, primarily suitable for large companies seeking significant capital for investment projects.The undoubted advantage of the bond issue is the high flexibility of the conditions for attracting capital, especially in comparison with traditional bank loans.
Principles of business financing through bonds
A bond is a security that defines the debt relationship between the bondholder and the issuer, confirming the issuer's obligation to return the bondholder its par value within the time period stipulated in the issue prospectus and pay the yield on the bond, unless otherwise provided by the issue prospectus.The issue of corporate bonds in the United States can serve to solve the following problems:
• Attraction of financial resources in order to cover the short-term deficit of funds required for investment in working capital.
• Covering the medium-term or long-term deficit of funds required for the implementation of large investment projects.
• Restructuring of current economic activities in order to change the ownership structure (absorption of competitors, turning them into dependent companies).
• Closure of unpromising subsidiaries and their divisions, as well as decommissioning of ineffective non-current assets.
• Financial restructuring (formation of liquid collateral in the form of securities, securitization of assets, debt restructuring, raising funds for financial recovery).
• Achievement of other tasks for the purposes of enterprise marketing (drawing attention to the brand, advertising products, public assessment of the company by analysts).
• Creation of exchange and credit history to obtain more favorable terms of financing in international markets and domestically.
• The needs of financial engineering to solve financial problems and seize new opportunities by issuing corporate bonds.
Depending on the level and nature of collateral, corporate bonds are divided into secured and unsecured.
Secured bonds are characterized by the fact that the obligations of the issuing corporation to pay interest and principal on them are supported by an appropriate amount of assets or securities.
In the case of the issue of guaranteed bonds, the fulfillment of obligations is not guaranteed by the issuing company, but by other serious partners. Joint bonds in the United States are guaranteed by two or more companies. Co-securing a loan and issuing joint bonds occurs when several companies undertake a joint project and finance it through a bond issue.
Unsecured bonds that are not backed by an appropriate collateral are issued by large companies whose creditworthiness is beyond doubt, or firms whose assets are so small that they cannot be used as collateral for a loan.
Bonds can differ not only in terms of security, but also in terms of their redemption.
There are, for example, early redemption bonds, or serial bonds issued in series with different maturities.
Convertible bonds are very specific business financing instruments. At the request of the owner, they can be exchanged for a certain number of shares of the same issuer. When convertible bonds are issued, the share of borrowed funds in the financial resources of the enterprise grows. In the process of converting such bonds into shares, the capital structure changes (the share of the company's own funds in the total volume of financial resources is growing).
Convertible bonds generally have much lower yields than conventional bonds or preferred stocks. The redemption of convertible bonds leads to a decrease in the value of the company's ordinary shares and "dilution" of the share of shareholders.
Therefore, the prospectus for the issue of convertible bonds often provides for "old" shareholders certain incentives for the purchase of such bonds or new shares.
The advantages and disadvantages of using corporate bonds in the United States
Corporate bonds offer numerous advantages in the context of financing large businesses.The main success factor is the correct choice of financial instrument for a specific investment project and the appropriate way of placing bonds.
The current American practice of attracting financial resources through the placement of corporate bonds provides for the following:
• Competitive market nature of bonds. From the point of view of the volume of placement and the cost of attracted financial resources, the success of the issue of corporate bonds is determined by the ratio of supply and demand in the financial market.
• One-time placement. When placing corporate bonds, the issuer attracts financial resources at the same time, and not in separate sequential parts as in the case of bank loans.
• Use of professional intermediaries. This is due to both a significant amount of attracted financial resources and the issuer's interest in maximizing the circle of bond holders.
• Using the developed financial infrastructure of the United States. Placement, circulation and redemption of corporate bonds provide for the use of exchange infrastructure, which allows minimizing the costs of participants.
• The fixed nature of debt. Payment of coupons and redemption of the par value of bonds are carried out in accordance with clear, predetermined parameters.
The issue of corporate bonds plays an important role in attracting financial resources by business entities around the world, including the United States and European countries.
However, the qualitative features and quantitative characteristics of corporate bonds can simultaneously become both advantages and disadvantages for issuers.
Table: Advantages and disadvantages of corporate bond placement.
| Advantages | Disadvantages |
| Attraction of significant financial resources for a period of more than one year | Additional costs associated with detailed analysis and disclosure of the issuer's information |
| No requirements regarding the strict targeted use of the attracted financial resources | Significant regulatory costs including underwriting, auditor and other specialist services |
| Obtaining additional opportunities for managing the company's debt portfolio | High fixed costs for various types of financial intermediaries, especially at the first placement of bonds |
| Reducing dependence on a single lender and reducing the concentration of risks on one source of financing | |
| Maintaining control over the company and reducing the risk of the lender's penetration into the company's management | Loss of significant funds in case of unsuccessful placement of bonds on the market |
| Raising financial resources from many investors, which is accompanied by softening of conditions and a decrease in the cost of financing. | Increase in the value of attracted financial resources in the event of a sudden decrease in market interest rates |
| Reduced debt service costs, especially thanks to the ample opportunities in the mature US bond market | |
| The most flexible tax conditions and financial planning of commercial activities | Decrease in key indicators of financial stability of the issuing company |
| Improving the credit history of the issuing company in the financial market | Significant restrictions on the use of attracted financial resources |
| Improving the history of the company's exchange activity and its reputation on the exchange | |
| Expanding financial modeling capabilities, including bond refinancing | Decreased financial mobility of the issuer due to the need to reserve significant funds to service debt on bonds |
| Increasing the investment attractiveness of the issuer due to careful external monitoring | Long preparation time and difficult attraction of the necessary financial resources for large business |
So, corporate bonds, which are issued by business entities, are classified as fixed income securities.
In the context of a shortage of financial resources, when many American companies are forced to look for alternative options for raising funds, corporate bonds can become an effective source of financing for medium and long-term investment projects, as well as the current commercial activities of issuers.
Venture financing of large business in the USA
Venture capital in the United States is viewed as a large over-the-counter capital investment in early-stage ventures.Venture funds play an important role in financing young companies with ambitious capital intensive projects. The American market is full of successful venture capital companies, including such world-famous names as Intel Capital, Bessemer Venture, Tiger Global Management, Accel (Accel Partners), Kleiner Perkins, Khosla Ventures and others.
In simple terms, the early stages of development are the period from the beginning of the transformation of an idea into a business model to its early expansion. An early expansion is a phase that occurs after a positive market test.
This is the moment when a company needs significant funds to bring a product (service) to market widely.
The essence of venture capital in the United States
The National Venture Capital Association (NVCA), which represents venture capitalists in the United States of America, gives a similar definition to venture capital.According to NVCA experts, venture capitalists mainly invest in young private enterprises that have significant growth and innovation potential.
Venture capital in the US mainly covers investments in new technologies:
• Software and electronics.
• Biotechnology and medical devices.
• Clean technologies, including renewable energy technologies.
• Mass media and entertainment, Internet and networks.
However, venture capital also includes investments in innovative ventures in traditional sectors.
These sectors include, but are not limited to, consumer goods manufacturing, energy sector, transport and infrastructure, chemicals, financial services, medical services and business services.
NVCA views venture capital as private equity.
The NVCA states that venture capital investors, unlike other private equity investments (mezzanine funds), generally do not use high leverage.
Advantages and disadvantages of venture capital funding in the United States
Historically, venture capital in the United States has emerged very early, contributing to the development of many innovative industries and making a significant contribution to the country's economic leadership in the second half of the twentieth century.There are some business benefits associated with venture capital investments. When looking for a venture capital fund, a company must go through a lot of negotiations and expertise that will bring great value to the company at all stages.
The benefits of this source of business finance are listed below:
• Increased confidence in the business. A business plan approved by a venture capital investment fund will make the business prosper. A venture capitalist will not fund a business that does not have a clear and innovative business plan.
• Consulting by experts in business management. Almost all venture capital firms have expert consultants who are well versed in business management. On the way to finance, companies will have to go through consultants who will advise and guide business development. Experts in their field of business will go through the business plan and provide some valuable material to help partners bridge all business gaps.
• Participation in management. Venture capital firms will be helpful in all matters related to management. Since they have invested in the company, they greatly influence management decisions. These venture capital companies manage their investments through veterans in their respective industries.
• Resolving problems related to resources and taxes. Investment companies will assist the organization in solving these problems. Legal issues, documents and any other problems related to wages and various taxes are solved by investment companies, reducing half of the burden associated with all these processes. In general, investment venture capital is the best way to start your business and successfully launch it in a safe manner.
The main disadvantage of venture capital financing in the US is the high cost of borrowing due to the high risk. In some situations associated with an increase in the guarantee against the misuse of invested funds, venture investors may remain co-owners of a company created for a promising investment project throughout the entire life cycle of product development.
A significant drawback of this method of financing is the lengthy process of raising funds.
The role of the investor in the successful development of the company is not limited only to timely financing, but also includes the provision of professional business experience and business relationships that contribute to the expansion of the company's activities, the emergence of new partners and sales markets.
A decisive role in the success of a venture project belongs not only to the idea behind a product or technology, but also to the quality of project management. For this reason, the venture capitalist is interested not only in the intricacies of a scientific idea, but also in its potential capitalization.
Venture capital has always helped many early stage companies grow.
More often than not, investors choose those industries that rely on high technological innovations like IT, software and biotechnology.
Typically, venture capital opportunities in these areas will emerge after the initial funding has been made and the first return on investment for the leap forward event is expected. This leap can be initiated through the first public offering (IPO).
Some of the more popular venture capital investment opportunities arise from the active involvement of business angels.
Venture capital investments in smaller companies tend to be associated with higher risk. In addition, these types of venture investment opportunities also include the acquisition of promising companies.
Mezzanine financing in the USA
Mezzanine financing is the use of debt instruments (loans, bonds) and options that allow you to convert (convert) this debt into shares or stocks of the company.This form of enterprise financing is used, in particular, for acquisitions (redemption), including management redemption (MBO).
The use of mezzanine business financing in the United States involves the use of a number of instruments that are combined taking into account the specifics of the enterprise and form the appropriate structure of debt:
• Mezzanine loan (unsecured or subordinated). The subordination of such a loan is ensured by granting the lender the right to alienate the borrower's real assets or shares. In foreign practice, such loans are provided for a period of 5-10 years with the right to early return after the end of the minimum term.
• Convertible bonds, which provide for the payment of fixed interest and principal at the end of the loan term, or the possibility of the lender receiving the borrower's shares at a predetermined price. In many cases, the practice of issuing bonds with a warrant.
• The hidden participation of the investor in the capital of the borrower, according to which the investor owns a share in the capital of the company, but is not responsible for its obligations to creditors. At the same time, information about the investor's participation in the capital of the borrowing company is closed to third parties, and the relationship between them to participate in the management and distribution of profits is determined by a confidential agreement.
Mezzanine financing in the United States most often involves repayment of principal and interest at the end of the financing period.
The term of such financing is usually several years. The financing provider can exchange all (part of) the loan or bonds for shares, depending on the agreed agreements. Mezzanine financing may also offer conversions to equity or interest-only equity.
More often than not, an intermediary creditor has the option of swapping debt for equity. This means that it is up to him to decide whether to convert debt or interest into equity. He also decides how much of the debt to convert.
Other financial models may involve payment of interest in the form of interest, as well as in the form of shares or stocks.
If you are looking for professional financial modeling services to organize mezzanine financing in the US or other countries, please contact the ESFC Investment Group finance team anytime.
Areas of application of mezzanine financing
Mezzanine financing is used in transactions requiring significant capital.These transactions include, first of all, acquisitions (for example, a leveraged buyout) or a management buyout.
As a reminder, a buyback consists in the purchase of all shares or a controlling stake (usually at least 50%).
Management buyout (MBO) is a special form of company buyout in which a group of people running a given company buys it from the current owner or owners. In such transactions, external, that is, borrowed capital is usually used.
It is widely used in the implementation of venture projects in the USA. In fact, mezzanine financing, which combines the features of both debt financing and direct investment, is a scheme when the owner of resources (investor) directs them to the development of the recipient's company without entering into its capital, and in exchange for debt obligations and an option with the right purchase of shares of the borrower in the future at a certain price.
The greatest interest in mezzanine financing may be for companies that have exhausted their opportunities to attract bank loans or seek to attract long-term resources and at the same time have stable cash flows or a significant amount of capital.
The main advantage of mezzanine financing compared to direct investments is its low cost, since under growth market value of the enterprise, it is cheaper to repay the mezzanine loan and redeem the option than to redeem the share of the capital transferred to the investor at the value of direct investment.
Compared to a conventional bank loan, mezzanine financing has a number of advantages:
• Attraction of borrowed financial resources for a long period and on favorable terms, including for companies for which bank lending is not available due to lack of collateral or non-compliance with financial requirements.
• The choice of a convenient form of debt repayment by directly returning the loan to the investor with interest payments, or by transferring the corresponding block of shares.
• Maintaining managerial independence, since during the duration of the mezzanine financing agreement, the lender's company does not interfere with the borrower's financial policy and direction of its activities (sometimes the lender may be given the rights to approve key decisions and exercise control).
• Deferral of the payment of a significant portion of the debt for mezzanine financing, since interest and other payments for mezzanine financing are made at the time of its repayment.
The main disadvantage of attracting borrowed funds under the mezzanine financing scheme is their relatively high cost, which is associated with a high level of risk for investors.
Since it is a hybrid financial instrument that combines the features of lending and equity raising, in the event of bankruptcy of the borrower, the debt will be collected after all loan obligations are repaid, but before the return of the share capital. In fact, the lender in the mezzanine financing scheme assumes part of the shareholder's risks, and therefore expects the highest return.
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