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For startups and marginally profitable companies, in almost all cases, your Offering will be equity. The principal exception will be real estate offerings. The reason is that with a debt offering, you must demonstrate the ability to pay both the interest and eventually return the capital. If your business plan expenses the funds raised, you will have difficulty explaining how to make your interest payments and repay the debt when it comes due. This is much easier to do in a real estate capital raise and can include strategies that allow you to eventually own 100% of the property a few years later.
If you are setting up a real estate purchase, consider that the banks where you will apply for mortgages may not be comfortable with 100% debt capital. Also, in your Offering, you must disclose that the mortgages will be preferred over any bondholders in liquidation.
See Tutorial #19: Creating a Real Estate Fund
Have Questions? Need Clarification? Call Mr. Shields at 1 239-378-1226. Consultations are free.
