On the top of every business owner’s mind as they try to help their startup survive is capital. No matter what structure you choose for your business, there will be significant challenges associated with getting the money you need to keep your company operating. As the limited liability company (LLC) is a rather popular structure among entrepreneurs, we will focus on some ways that LLC owners can raise money for their company.
Bootstrapping
Before you start soliciting your external network for capital, take a look at what you have readily available to get things off the ground. Pouring your own liquid assets into your company is referred to as “bootstrapping.” In this phase, you could also ask your friends and family if they feel comfortable contributing anything.
Equity vs. Debt
When you get to the point where you’re comfortable delivering a sales pitch to outside investors, you should be aware of the two ways most investors will want to be compensated for their contributions. Generally, outside investors will want to either be repaid by getting back the principal plus interest (debt) or receiving an ownership stake in the business (equity).
Once someone contributes capital to an LLC, that person can be added to the LLC as an owner (referred to as “members” in the context of LLCs). When someone becomes a member of your LLC, they will receive an ownership stake (equity) in the company and, therefore, become entitled to a certain percentage of profits. Additionally, they might be able to weigh in on decisions affecting the company. These are the drawbacks of offering equity in your company to raise money, but the advantage is that you do not have the expense of paying back your debts, which frees up some working capital.
On the other hand, raising funds for your LLC through debt means that you are not giving up any control of your company. While you do have the regular expenses of paying back the principal plus interest, the interest on your company’s loan may be tax deductible. However, one disadvantage of raising money through debt is that you might miss out on partnering with someone who has knowledge and expertise in your LLC’s industry. Another disadvantage is that LLC owners are sometimes required to guarantee their personal assets against business loans.
Conclusion
There are several options for members of an LLC in Florida to raise money for their enterprise. While your own assets and the assets of your family and friends are tempting to use first, you should consider how you want to eventually try to raise money from third parties. The good news is that there are a number of federal and state programs that can help you connect with potential investors, but you may have to face a lot of rejection before you get to a “yes.”
Bryant Taylor Law focuses on helping Florida small business partners form their companies the right way so they have a solid legal foundation. As small business owners ourselves, we understand the challenges and opportunities faced by entrepreneurs. To discuss your options with us, schedule a short 15-minute business strategy session today.
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