Another paramount reason,
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to select Spiegel & Utrera, P.A.
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HOLIDAY OFFICE HOURS FOR CHRISTMAS AND NEW YEARS DAY
Our offices will be open on Wednesday, December 24th and open on Friday, December 26th. We will be closed on Thursday, December 25th. The following week, our offices will be open on Wednesday, December 31st and will be open on Friday, January 2nd. We will be closed on Thursday, January 1st. We Wish You Health, Happiness, Peace and Joy!

MONEY FOR YOUR BUSINESS

At Spiegel & Utrera, P.A., our goal with Money For Your Business is to provide the many financing options available to you. We want you to get the money your business needs. Many of the options will not require our direct assistance, while others might, you decide. When you utilize the services of Spiegel & Utrera, P.A. for Money For Your Business, you will receive a credit of the entire amount of the charge to form your Corporation, LLC or Partnership including any add on items up to a maximum credit of $1,500. When making your initial Money For Your Business inquiry, be sure to give the name of your Corporation, LLC or Partnership and mention promo code SUMFB. Offer available in NY, NJ, DE, FL, IL, NV and CA.

Remember, you can always talk to a lawyer at the Spiegel & Utrera, P.A. General Counsel Club legal assistance line at (800) 734-9900 or call Larry Spiegel directly at (800) 603-3900, extension 219 or submit an INQUIRY HERE without any cost or obligation.

Accounts Receivable Financing
Accounts receivable financing is another term for factoring (see a more lengthy description below), and it is a popular form of raising capital for an existing business with steady customers. The company that needs money assigns the rights to its accounts receivable to a specialist factoring company that advances the value of a percentage of the receivables for a fee, and assumes the responsibility to collect.

Advanced Sales
Advanced sales can be achieved in a number of ways and can help fund a new business such as by asking for a deposits when an order is placed or charging for the product prior to delivery.

Accredited Investor
Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as “accredited investors.”
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

  1. a bank, insurance company, registered investment company, business development company, or small business investment company;

  2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

  3. a charitable organization, corporation, or partnership with assets exceeding $5 million;

  4. a director, executive officer, or general partner of the company selling the securities;

  5. a business in which all the equity owners are accredited investors;

  6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;

  7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

  8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Angel Investor REGISTRATION OF ANGEL INVESTOR
An angel investor or angel (also known as a business angel or informal investor) is an affluent individual, an accredited investor, who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

Asset-Based Financing
Asset-Based Financing is lending secured by an asset so that if the loan is not repaid, the asset is taken. A subset of asset based financing is invoice financing, where a financing company advances funds based on existing orders.

Bank Line of Credit
A line of credit involves the bank setting aside designated funds for a business to draw against as needs dictate so that as purchases are made the credit line is reduced. And when payments are made, the credit line is replenished. No interest is charged unless purchases are made using the credit line. A line of credit may require a personal guarantee.

Bank Loan
A bank loan is a term loan for expansion of operations, banks usually require a personal guarantee and excellent credit record.

Bridge Loan
A small company may be months away from running out of cash, even though a venture capitalist may be not far off with the required funds for substantial expansion.

What to do? Maybe a bridge loan. Typically in the range of $100,000 to $250,000, such a loan is a short-term note that has a maturity of 30 days to nine months and an interest rate that may range from 7% to 12%, normally payable at the end of the term on the loan. The loan would provide gap financing until the arrival of a new round of funding.

However, bridge loans require speed and often come about in tough times, so the borrower has little or no leverage and the terms can be particularly harsh, such as 100% warrant coverage, a percentage of the amount invested that an investor can purchase in the company's stock, pledging some or all of the company's assets for the bridge loan, high origination fees, such as 1% to 2% of the loan amount, and restrictions, such as that an investor may require that the start up company reduce its expenses and not make any large investments.

Perhaps the biggest challenge for a bridge loan is finding investors. While every situation is different, a bridge loan is a last resort unless the start up company has a strong customer base and needs a temporary injection of capital.

Buy an Existing Business
Sometimes anxious owners and sellers of a business want to “sweeten the pot” and offer the incentive of purchasing the business from and financing it through the existing cash flow over a predetermined period.

Brokerage Firm Loans and Lines of Credit
A number of major brokerage firms allow small business owners to obtain loans and credit lines.

Business Development Council
Local governments often have economic development councils to attract businesses to the area and to help existing local businesses to expand through tax breaks and subsidies.

Distressed Franchisee
A franchisee may have performed poorly than originally expected and defaulted in making payments to the franchisor. The franchisor will be anxious to get new operators and investors to turn the business around, which can be a prime opportunity for forward-thinking entrepreneurs.

Business Credit Cards
Corporate credit cards can be an important source of financing for a small operation. Building the size of the credit line may be done by using the cards regularly and paying in a timely fashion.

Corporate Debentures
Corporate debentures are normally backed by the reputation and general creditworthiness of the issuing company. Corporations occasionally issue this type of debt securities in order to raise capital. It is a type of debt instrument that is not covered by the security of collateral.

In the case of a debenture the company is liable to pay a specified amount with interest indicating the fact that it has similarities with a certificate of loan or a loan bond. In other words, a debenture is an instrument of debt executed by a company acknowledging its obligation to repay the borrowed sum at an agreed rate of interest.
 
Debentures are a debt instrument like a bond, but the main difference between debentures and bonds is that debentures have no collateral and normally carry a higher level of risk. It has been observed that bond buyers generally purchase debentures on the belief that the bond issuer would not default on the repayment.

One of the most familiar types of debentures issued by the companies is the convertible debenture which allows a debenture holder the option to convert his debentures into shares of the same company after a specified time.

Direct Public Offering
Direct Public Offerings involve securities registered with state “Blue Sky” agencies rather than the federal Securities and Exchange Commission, so there are simpler procedures and lower cost than with federal registrations.

Employee Stock Ownership Plan
An Employee Stock Ownership Plan (“ESOP”) is a qualified retirement plan much like a profit sharing plan, where the company makes contributions on behalf of the employees, and such contributions are allocated to the employees’ accounts according to compensation. Then the contributions are invested and grow tax-free until the employee terminates or retires. Upon termination or retirement, the employee receives his or her vested interest in the plan.

An ESOP is designed to be invested primarily in employer securities so that the ESOP becomes part of the corporation's capital structure. The ESOP offers unique tax advantages that make it an effective tool for expansion.

An ESOP offers the following advantages to a company:

ESOPs are eligible to be S corporation shareholders, and ESOPs do not have to pay tax on their share of the S corporation's earnings. Existing S corporations can now adopt ESOPs and take advantage of the benefits of employee ownership, but the ESOP must provide meaningful benefits to rank-and-file employees and not discriminate in favor of highly-compensated employees. Furthermore, there are arrangements that the Internal Revenue Service may deem an abusive transaction, such as where taxpayers attempt to exclude the income of an operating business through the use of a combination of an S corporation and an ESOP. Typically, the owner of an operating business creates an S corporation and causes the operating business and S corporation to enter into an agreement under which the operating business pays a fee to the S corporation in exchange for management or other services. In addition, the management services S corporation adopts an ESOP that is treated as the sole shareholder of the management company and in which the beneficial owner is the sole participant in the ESOP.

Under this arrangement the operating company may attempt to deduct its payments to the S corporation for management services and the income of the S corporation is passed through to the ESOP and because the ESOP is a tax-exempt entity, the income is not subject to tax until distributed from the plan, but the Service has determined, that many of these arrangements the ESOP fails to satisfy the requirements for a valid ESOP.

The key benefit in adopting an ESOP for an S corporation is that the ESOP does not have to pay tax on its share of the S corporation earnings. Instead, the single layer of tax is applied to the ESOP participants when they take a distribution of their accounts.

ESOPs are an outstanding tool in one of three situations:

Commonly owners of closely-held businesses often find themselves facing retirement and planning a business exit strategy, which may include going public, gifting business interests to family members, selling the business to a competitor or selling the business to employees and management.

Selling the business to employees and management may be attractive, but management generally does not have the capital to purchase the business. In such a scenario, an ESOP may provide the capital vehicle for management and the employees.

An ESOP can borrow money and use it to buy some or all of the owner's stock. Because the ESOP pays no tax on its share of corporate earnings, it can then use the tax savings to pay for the shares. This will enhance the corporation's cash flow and the value of the business. The employees and other remaining shareholders, including the selling shareholder if he retains an interest, will all benefit from the tax savings and increased cash flow opportunities.

The ESOP will not pay any tax on its share of the S corporation earnings and can use the tax savings to repay the loan, thus improving the corporation's cash flow.

Rather than stripping the cash out of the company, many owners are using an ESOP to finance growth and expansion. In many cases, an owner can sell 10% or more of the company to the ESOP and use the cash flow benefit to finance growth. In most cases, the value of the portion of the business retained by the owner will be worth more than if the owner did not sell any stock to the ESOP.

The benefits of an ESOP accrue to everyone including the company, its employees and its shareholders. Companies benefit from ESOPs, not only from their tax advantages, but also from their flexibility in meeting many corporate planning needs.

Shareholders benefit from an ESOP because it creates a market for their stock, and tax laws allow for the deferral of capital gains of sales of stock to an ESOP. Continuing shareholders also benefit from a more profitable company.

Employees benefit because the ESOP makes them beneficial owners of that part of the company owned by the ESOP.

Company benefits:

Shareholder benefits:

Employee benefits:

By implementing an ESOP, a corporation can create an employee/owner work force which has the same objectives as the shareholder. All are motivated to build a viable, growing and profitable company and derive greater work satisfaction. To the extent that the employees/owners are successful, they share in the capital appreciation of their ESOP account.

Factoring
Factoring is an arrangement where a factor buys the accounts receivable of a business and the factor will do the collecting from the debtor. The buyer does not give full value on the receivables, because they don't know whether it will be able to collect and because it will take a good deal of time and money for them to check credit on such customers and to run the collections process. The factoring company will likely require an accounts receivable aging report, so it can see how long the customers have owed money.

Factoring companies pay based on the length of time the receivables have been outstanding, the number of receivables, and the credit ratings of the customers. The factor will review the receivables and give you an initial amount, probably no more than 80 percent on the total within a few days. Then the factor will charge a fee for the actual collections of from 2% to 6%, depending on how difficult the receivables are to collect. With the initial discount on the purchase of the receivables, and the fees, the seller may get no more than 40 percent of the receivables.

The factoring company wants to treat accounts receivable customers well, because the factoring company wants to get the payment and the factoring company doesn't want to destroy the seller’s relationship with its customers because they want the seller to continue to rely on them. Factoring can provide funds more quickly than a traditional bank loan, but it is more expensive. If cash is needed fast, it is a way to get some fairly quickly.

Faith-based Initiative Grants
Faith-based initiatives allow access to federal grants for low-income development areas. A church, synagogue, mosque or other religious institution may sponsor businesses and business initiatives within the area.

Federal Government Grants
There are many different grant programs offered by the US government which may be available to minority-owned businesses, specific industries or technologies and economically depressed areas.

401(k) Loans
A company-sponsored 401(k) plan may allow borrowing up to half of the vested value, but repayment is required within five years and interest will be charged.

Foreign Investment Capital
Foreign investment capital may be seeking the highest returns and are willing to fund emerging entrepreneurial activities.

Franchising
Franchising a successful business concept means duplicating the original business to service cities all around the country or even the world. A franchisor wants to insure a high quality standard is maintained so a customer can get the same or similar experience wherever they go. The franchisee pays a sizeable fee and a percentage of gross sales to the franchisor.

Home Equity Line of Credit
In a desperate situation, you may borrow against the existing equity in your home, but interest rates are likely more than traditional mortgage rates.

Hard Money Lenders
Hard money lenders are real estate investors that lend based on the worth of a residence after it has been repaired and rehabilitated, and the interest rates charged are significantly high.

Hedge Fund
A hedge fund is a portfolio of investments with risky investment strategies for the purpose of high returns. Typically, a hedge fund may involve private investment partnerships requiring a large initial minimum investment.

Installment Loans
Installment loans involve a loan that is repaid with a fixed number of periodic equal-sized payments.

Investment Banks
Investment banks issue and sell securities in primary markets, assist businesses by obtaining equity and debt in capital markets and render strategic and advisory services for complex financial transactions.

Investment Clubs
The beauty of an Investment Club is that everyday people can combine their resources to make money in an effective, low cost way. An Investment Club is a group of people who pool their money to make investments. Each member actively participates in investment decisions. After the members study different investments, the group decides to buy or sell based on a majority vote of the members. Club meetings focus on investment education and each member actively participates in investment decisions.

What’s the best business entity for an Investment Club? Probably the Limited Liability Company. The Limited Liability Company (“LLC”) is a hybrid entity that is very flexible and, depending on how many owners (known as “Members”), should be deemed as a partnership (by default) for tax purposes if it has multiple Members, or as a corporation by election if it has only one member, while providing limited liability protection for all of its Members.

For federal tax purposes, an LLC, like a partnership or sole proprietorship, is a pass-through entity; thus, its income and losses are taxed only at the member level. However, all members of an LLC, like the shareholders of an S corporation, have limited liability for the debts and claims against the LLC. No member will be burdened with personal liability.

An Investment Club LLC can have as few as one Member to start with or as many as 100, but no more than 100 Members. The Members of the LLC become owners of the Company by putting capital (making a “Capital Contribution”) into the Company in exchange for Ownership Units. Ownership Units will entitle a Member to an allocation of profits and losses of the Company related to investments, but the Club itself has no profit and the Members are assessed operating expenses. Initially Ownership Units are $25 per Ownership Unit with a limit of 1 Ownership Unit per Member. For example, one founding Member may be issued an Ownership Unit and thus be the sole owner with a 100% Membership interest. Later, 3 additional Members may join the Investment Club LLC so that each has 1 Ownership Unit and each has a 25% Membership interest in the Investment Club LLC. If the Investment Club LLC expands to 100 Members, each would have a 1% Membership interest. Members may wish to deposit into their investment accounts initially upon formation or at a later date. Such contribution sums may be $0.00 up to an unlimited amount.

The Investment Club LLC is structured to admit Members, either individuals or business entities, who will act as day-to-day managers (“Managers”) in addition to capital-contributing members (“Members”), but active participation in investment proposals and decisions is required so that the Units are not deemed securities for U.S. Government purposes. Committees of members can research and propose specific investments such as stock, bonds, art, real estate, gold coins, or any other investment vehicle approved by the Members. You are in control of your investment destiny!

Initially an Investment Club LLC may need a cash infusion for operational expenses. Additionally, the Investment Club LLC may require a continuing advance of funds for some time. How can the Investment Club LLC get the money? After the initial purchase of its Units, Members of the Investment Club LLC may loan money to the Investment Club LLC. Lending money to the Investment Club LLC is the preferred method to advance money, because the lender is seen as a creditor of the Investment Club LLC. This is accomplished with a Lender's Agreement and a Promissory Note.

Initial Public Offering
An Initial Public Offering (IPO) is when a corporation sells stock to the public for the first time. IPOs generally involve one or more investment banks as underwriters. The corporation issuing its shares and offering them for sale on a public exchange enters a contract with a lead underwriter to sell its shares. The underwriter then approaches investors with offers to sell these shares.

Inventory Factoring
Inventory factors lend money to businesses that have valuable inventories and then pledge the inventory against future sales.

Institutional Investors
Insurance and pension fund managers may want to invest in smaller companies with a potential for growth that can provide a bigger and quicker return on the investment.

Leasing Equipment
Lease financing is great for getting business equipment rather than using business capital and having larger upfront costs.

Letters of Credit
A letter of credit is a contractual agreement between an issuing bank on behalf of one of its customers to authorizing a confirming bank to make a payment to the beneficiary, who is usually a provider of goods and services. The issuing bank opens the letter of credit and makes a commitment to honor the draw made under the credit. The beneficiary is normally the provider of goods and/or services.

Intellectual Property License
Got a great product design? License the rights to your product and have the producer pay you a royalty.

Leverage Financing
Buying an existing business is less risky than starting with nothing. When you acquire a business, you take over an operation that's already generating revenue with an established customer base, reputation and employees who are familiar with all angles of the business so that you don't have to reinvent the wheel by setting up new procedures, systems and policies—all the tools are right there! Furthermore, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable.

As for financing, it's easier to obtain the funds to buy an existing business than to start a new one, because bankers and investors generally feel more comfortable dealing with a business that already has a proven track record. Not sure how to finance the business acquisition? A Leveraged Buy Out (an “LBO”) is an exciting strategy involving an acquirer’s acquisition of a business using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition, similar to the way a person might purchase a house using their own funds for the down payment and funding the remainder of the purchase price through outside lenders. Generally, the assets of the business being acquired are used as collateral for the loans to buy the business.

The advantages of LBOs are:

LBOs are a smart way to allow acquirers to make large acquisitions without having to commit a lot of capital, and at times it may be possible for the acquirer to obtain its portion of the purchase price through mezzanine financing. With mezzanine financing, lenders can provide funds quickly, but the debt can be converted to equity if payment of the corporation’s debt is not timely.

The remainder of the loan capital in the LBO is borrowed through a combination of bank credit facilities and/or debentures. A debenture is long-term debt instrument where the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. The debt will appear on the acquired business' balance sheet and the acquired business’ free cash flow will be used to repay the debt.

Life Insurance Borrowing
Whole life policies accrue cash value over time and the owner of the policy may borrow against it.

Management Buyout
The buyers of a company are the managers. Since the managers should have information and experience as to the performance of the company, the due diligence process is likely to be limited and the seller is unlikely to make any warranties to the management.

Management may want a buyout to save their jobs, if the business has been scheduled for closure or if an outside purchaser would bring in its own management team. Also, management may want to maximize profits they receive from the success they may bring to the company.

Typically, the management of a company will not have funds available to buy the company outright, so they would first seek to borrow from a bank, if the bank would accept the risk. If the bank is unwilling, the management may look to private equity investors to fund the majority of buyout, in which case the private equity investors will invest money in return for a proportion of the shares in the company or also lend to the management. Commonly investors may require that the managers each make a large investment to ensure that management has a vested interest in the success of the company.

The investors may impose warranties so that the management bears all the risk of any defects in the company that affects its value. Furthermore, the investors may impose numerous terms on the management to ensure that the management run the company in a way that will maximize the returns during the term of the investment.

Sometimes the management and the original owner of the company may agree to a deal where the seller finances the buyout where the price is being paid over the following years out of the profits of the company. This may be a disadvantage for the seller, which must wait to receive its money after it has lost control of the company. It is also dependent on the returned profits being increased significantly following the acquisition. However, the seller may agree because the sale price may be higher than what would be obtained by a normal purchase. The advantage for the management is that they do not need to become involved with private equity or a bank and will be left in control of the company once the consideration has been paid.

Manufacturer Financing
Many equipment manufacturers may offer financing for purchase of their products. If a business requires big outlays to purchase equipment for startup, the manufacturer or distributor may be happy to finance the purchase.

Merchant Account Financing
Similar to factoring, this type of financing converts future credit card sales to cash.

Mezzanine Financing
Mezzanine financing is utilized when a company doesn’t have enough collateral but has good cash flow. Sometimes mezzanine loans are collateralized by taking a second lien secured by intangible assets such as patents. Most mezzanine financings are subordinated to bank loans, hence referred to as the “sub-debt,” another name for mezzanine loans. What situations may be appropriate? Mezzanine financing may be appropriate for managers who want to buy out a business owner, but who won’t have enough money from a senior lender, so equity financing is needed. Managers may not have accumulated a lot of capital. But if the buyout is a good opportunity and the management is solid, mezzanine can be a valuable component of that transaction utilizing outside capital. Another situation involves existing companies structuring an acquisition, particularly for companies with sales of $20-$40 million, since banks won’t typically lend these firms enough money for the acquisition.

Private Debt
A business can raise investment capital by with a secured or unsecured promissory note. The investor is a creditor, rather than an owner of the business, so loan payments have to be made, instead of having payment contingent on earning a profit.

Private Investment Public Equity (PIPE)
Many small companies often face significant hurdles in their efforts to raise money. In an effort to alleviate the problem, there has evolved an increasingly popular financing technique commonly known as a “PIPE” (Private Investment in Public Equity) transaction.

In a typical PIPE transaction, the corporate issuer sells shares of common stock at a discount. As a further incentive, the corporate issuer also issues warrants enabling the holder to purchase additional corporate shares at a price equal to or at a premium to current market prices.

The shares issued in a PIPE transaction are restricted from transfer, so the issuer is required to file a registration statement. If the registration statement filing is delayed, the issuer may be required to pay liquidated damages to the holders (typically 1 percent or 1.5 percent per month) to make them whole for the lack of liquidity.

A PIPE transaction may be done quickly and much more cheaply than a registered public offering, because many institutional investors have form purchase documents that can be used to generate deal documents quickly. Also, the placement agents active in the PIPEs market may have close and ongoing relationships with PIPEs investors which may expedite the deal. Although the issuer is required to file a registration statement, the expenses involved may be paid after receipt of the investment proceeds.

A PIPEs issuer wants buy-and- hold investors, because such investors may become a ready source of future financing. A reputable placement agent will try to build an order book that best suits the needs of a particular issuer.

Private Placement Memorandums (PPM)
A Private Placement is the offer and sale of corporation stock by any security firm not involving a public offering. Private Placements do not have to file a registration statement with the Securities and Exchange Commission. Instead, corporation shares are sold without advertising or general solicitation, not on the open, public market, to select persons. The disclosure of the specifics of the offer of stock for sale is made in the PPM. The corporation shareholders and directors decide how much of the stock to sell, at what price, to how many private investors to sell.

Regulation D of the Securities Act of 1933.
A private placement may be a way of raising money with “accredited investors” and thus exempt from federal securities registration which allows you to take advantage of exemptions in federal securities laws. A private placement may require careful compliance with Regulation D of the Securities Act of 1933.

Private Grant Programs
There are many foundations and non-profit organizations that offer grants to businesses. Such grants may be targeted to specific industries or on businesses in economically disadvantaged communities.

Private Equity Fund
Private equity fund is an investment pool used for purchasing equity securities. Typically, a private equity fund may involve limited partnerships where institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund. A private equity fund may be raised and managed by a specific private equity firm that is the general partner of the limited partnership.

Payroll Advances
Funds may be advanced based on a businesses current payroll amount.

Reverse Mortgage
A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you continue to own the home. Instead of paying your lender each month like a traditional mortgage, with a reverse mortgage the lender pays you. Reverse mortgages differ from home equity loans in that most reverse mortgages do not require any repayment of principal, interest, or servicing fees as long as you live in the home.

The reverse mortgage’s benefit is that it allows homeowners who are age 62 and over to keep living in their homes and to use their equity for whatever purpose they choose. A reverse mortgage might be used to expand the operations of your business.

When the homeowner dies or moves out, the loan is paid off by a sale of the property. Any leftover equity belongs to the homeowner or the heirs. To qualify for a reverse mortgage, you must own your home. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate the lender is charging. Because you keep the title to your home, you are responsible for taxes, repairs, and maintenance. Depending on the reverse-mortgage plan you choose (FHA-insured, lender-insured, and uninsured), your reverse mortgage becomes due, with interest, when you move, sell your home, die, or reach the end of the selected loan term. The lender does not take title to your home when you die, but your heirs must pay off the loan. The debt is usually paid off by refinancing it into a forward mortgage (assuming the heirs are eligible) or with the proceeds from the sale of the home. A real benefit of reverse mortgages is that borrowers can live in their homes as long as they like, even after they have completely exhausted their equity. Borrowers must do their best to maintain the value of the home with diligent upkeep.

Depending on the lender, borrowers can choose to receive monthly payments, a lump sum, a line of credit, or some combination. A few reverse-mortgage programs guarantee monthly payments for life, even after the borrower no longer lives in the home. You can request a loan advance at closing that is substantially larger than the rest of your payments.

The reverse mortgage payments you receive are nontaxable. Further, if you receive Social Security Supplemental Security Income, reverse mortgage payments do not affect your benefits, as long as you spend them within the month you receive them. This rule is also true for Medicaid benefits in most states. Interest on reverse mortgages is not deductible until you pay off your reverse mortgage debt.

The maximum loan amount limits are based on the value of the home, the borrower's age and life expectancy, the loan's interest rate, and whatever the lender's policies are. The maximums range (depending on the lender) from 50% to 75% of the home’s fair market value. The general rule is that the older the homeowner and the more valuable the home, the more money will be available.

All reverse mortgages have non-recourse clauses, meaning the debt cannot be more than the home’s value. Thus, the lender seeks repayment from heirs, family members, or the borrower's income or other assets.

Some of the downside aspects of reverse mortgages are that reverse mortgages are rising-debt loans. This means the interest is added to the loan balance each month, since it is not paid currently, and the total interest you owe increases greatly over time as the interest compounds. Also, reverse mortgages use up the equity in your home, leaving fewer assets for you and your heirs. Furthermore, the high up-front costs of reverse mortgage make them less attractive. All three types of plans (FHA-insured, lender-insured, and uninsured) charge origination fees and closing costs. Insured plans also charge insurance premiums, and some plans charge mortgage servicing fees.

With many reverse mortgage plans, interest rates are adjustable annually or monthly and tied to a public index, in some cases with limits on how far the rate can go up or down. Reverse mortgages with interest rates that adjust monthly have no limit. Bear in mind that the higher the rate, the faster your equity is used up.

In order to give a fixed rate, one lender requires appreciation sharing, with which it gets a part of any increase in the home's value over and above the debt. Another lender offers percent of value pricing, collecting a fixed percentage of the home's value when the loan comes due. The latter option can be very expensive if the loan must be paid off after only a few years.

One of the best protections you have with reverse mortgages is the Federal Truth in Lending Act, which requires lenders to inform you about the plan's terms and costs. Among other information, lenders must disclose the Annual Percentage Rate (APR) and payment terms. On plans with adjustable rates, lenders must provide specific information about the variable rate feature. On plans with credit lines, lenders also must inform you of any charges to open and use the account, such as an appraisal, a credit report, or attorney’s fees. New rules require that total cost estimates illustrate at least three loan periods (short-term, life expectancy and long-term) and three likely appreciation rates (the predicted percentage increase in the home's value over the loan period). Armed with these estimates from several lenders, borrowers can more easily match programs to their needs and shop for the best mortgage value.

Reverse Mergers
A reverse merger is where a private corporation merges with a publicly-traded shell company.

Royalty Financing
An investor may wish to buy a percentage of a future revenue stream of a company.

SBA Programs
The Small Business Administration (SBA) offers Microloans, LowDoc loans, Express loans, export working capital loans, 7(a) loans, and 504 loans. Furthermore the SBA is involved with a Small Business Investment Corporation (SBIC) which is a series of privately owned investment funds licensed by the SBA.

Small Corporate Offering Registration
Raise up to $1,000,000 per year
To make it easier for small businesses to have access to capital, some states allow a simplified registration process for small businesses known as the Small Corporate Offering Registration ("SCOR"). Because of its simplicity, the SCOR can assist small business owners in developing a thorough business plan as well as provide a clear and concise statement of disclosures for prospective investors. SCOR was developed by the North American Securities Administrators Association (“NASAA”) with oversight by the Securities and Exchange Commission (“SEC”) and input from the American Bar Association. SCOR can be a part of a federal regulation exemption under Rule 504 of Regulation D as promulgated by the SEC. With SCOR, up to $1 million of securities registered under state securities law may then be sold every twelve months to the public by approved advertising or other means of general solicitation, and there is no time restriction on the resale of the securities.

State Government Grants
The state government has grant programs to subsidize small business.

Trade Credit
Trade credit is where a vendor provides goods or services to a customer with an agreement to bill them later.

Venture Capital  REGISTRATION OF VENTURE CAPITALIST   |   REGISTRATION OF VENTURE CAPITAL FIRM
An important way to get money to start and expand a business is called venture capital -- with venture capital you can sometimes obtain large quantities of money, and this money can help businesses with big start-up expenses or businesses that want to grow very quickly. A venture capital firm typically opens a fund that the venture capital firm will invest.

The venture capital firm will then invest the fund in some number of companies -- for example, 10 to 20 companies. Each firm and fund has an investment profile, such as biotech startups or a mix of companies that are all preparing to do an Initial Public Offering. The profile that the fund chooses has certain risks and rewards that the investors know about when they invest the money.

Typically the Venture Capital firm will invest the entire fund and then anticipate that all of the investments it made will liquidate in 3 to 7 years, such as by "going public" where the company sells shares on a stock exchange or to be acquired by another company. In either case, the cash that flows in from the sale of stock to the public or to an acquirer lets the venture capital firm cash out and place the proceeds back into the venture capital fund. When the whole process is done, the goal is to have made more money than originally invested. The fund is then distributed back to the investors based on the amount each one originally contributed.

From the point of view of a start up company that needs a venture capital firm, the start up needs money to grow. The company seeks venture capital firms to invest in the company. The founders of the start up company create a business plan that shows what they plan to do and what they think will happen to the company over time, such as how fast it will grow, how much money it will make, etc. The venture capitalists look at the plan, and if they like what they see they invest money in the company. The first round of money is called a “seed round.” Over time a start up company may typically receive 3 or 4 rounds of funding before going public or getting acquired.

In return for the money it receives, the start up company gives the venture capital firm stock in the company as well as some control over the decisions the company makes. The company, for example, might give the venture capital firm a seat on its board of directors. The company might agree not to spend more than a certain dollar amount without the venture capital firm’s approval. The venture capital firm might also need to approve certain people who are hired, loans, etc.

Sometimes a venture capital firm may offers more than just money. It might have good contacts in the industry or it might have a lot of experience it can provide to the start up company.

An important consideration is how much stock should the venture capital firm get in return for the money it invests. The start up company and the venture capital firm should choose a valuation for the start up company. This is the pre-money valuation of the company. Then the VC firm invests the money and this creates a post-money valuation. The percentage increase in the value may determine how much stock the venture capital firm receives.

Start up companies may use venture capital firms because they need lots of cash for advertising, equipment, and employees. They need to advertise in order to attract visitors, and they need equipment and employees for productivity. The amount of advertising money needed and the speed of change can make bootstrapping impossible.

Thinking about acquiring a business? Buying an existing business (if the business is strong, it is sometimes known as a “going concern”) is less risky than starting with nothing. When you acquire a business, you take over an operation that's already generating revenue with an established customer base, reputation and employees who are familiar with all angles of the business so that you don't have to reinvent the wheel by setting up new procedures, systems and policies—all the tools are right there! Furthermore, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable. Read about our Leveraged Buy Out Collection

SPIEGEL & UTRERA, P.A. is your one source for business legal services.

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