What is private placement financing? It is actually selling the equity shares to a group of selected people. These people are the selected few because they have very good relationship with the company and are financially very strong. There is no issue placed in the market like in case of public issue of shares through initial public offers and the entire process is kept very secret and within closed walls. This is one reason why it is called private. Now we would look some of the features of private placement:
1. One can raise any amount within the twelve month period which is generally the stipulated time.
2. There is access to unlimited accredited investors through private placements.
3. There could be a limit of thirty five accredited investors allowed through private placement.
4. There are sophistications standards for each investor.
5. The private placement program memorandum details should be disclosed to all potential investors.
The private placement program package includes:
1. Custom authored PPM package
2. Access to a database of over thirty thousand accreditors and funding sources.
3. Massive publicity campaign to raise brand awareness and assist in investor due diligence.
4. Free download of point and click publicity software’s called Mass Publicity Explosion.
The following are some of the advantages of private placement:
1. There is huge flexibility in getting the finance for your project. You can source from a few lakhs to up to millions of dollars. It all depends upon the willingness of the investors whom you are getting in touch with.
2. There are no costs involved like share issuing costs, initial public offer costs, etc.
3. The people who are investing are basically very calm and patient with the repayment of the loan. They are willing to wait up to even ten to fifteen years to get back their lent money. Whereas if you take banks or other financial institutions, they expect you to pay back the money within a stipulated time and if you are not able to do that then there is lot of pressure being imposed by them to recover the money which would also have a negative impact on your business.
4. The money could be raised very quickly form private individuals as there are very few formalities involved in obtaining the loan. But in case of banks the time consumed is a lot and it drains out half your energy before you get the money in your hands. The reason being there are lot of documentations and formalities involved in obtaining loan from banks.