An Analysis Of IPO Versus Business Loans
Imagine you are on the board of directors of a company which requires a capital boost to maintain a steady rise in production and sales. It is imperative to keep the rise under check to prevent unforeseen hitches in the future which can lead to the company’s malfunction instead of its advancement.
Among the several propositions you may receive from your workmates, it may be suggested to use the company’s existing funds to advance some business credit to support the growth or to open it to the public hoping to draw in interested shareholders to supply the required finance needed for the rise in production.
You could chose either of the above options after thinking over both possibilities well enough considering both the benefits and the risks involved. If you chose the first option, you will have to reveal some of the company’s resources as proof for the loan’s authenticity. The second option allows you to be enlisted in an IPO and count the shares to be sold to the public and so on.
There will arise a doubt on which choice would be of greater benefit to the company and its shareholders.
Analyzing the first option, it includes a relatively easy procedure which involves hunting down a company which will lease out the required amount of cash. The chief executives of your company would sign an agreement with the loan company before the money is lent. Some of the company’s resources may be held with installments to be paid every month till the due date of payment with interest.
If you chose to enter an IPO, you first sell the common shares to the public and must take into account legal procedures like governing laws especially the Federal Securities act of 1993, including governing bodies like the Securities and Exchange Commission and the exchange which has recorded the company’s common shares. The total expenditure will come to around $1 million, but the profit will be higher than what you spend as the underwriters will market your shares at a higher selling price.
The difference between both options is that with an IPO you are required to spend cash in the beginning and you gain money on hand only at the end, while with a loan, the money is at your disposal right from the start. But take caution with loans, if you fail to rebate the borrowed money or violate the agreement on the loan, the resources kept as a security will become the money lender’s possession. Your company’s resources will not be in jeopardy with an IPO thanks to the extra capital it brings you.
Thus, it is in your hands to compare both possibilities and zero in on the best of these options which may be compatible for your business.