Cost of Capital – Small Business Financing Tips

Finance & Accounting

Andrew Nere – CEO of ILS discusses the true cost of capital.

What is the true cost of capital?

The amount of money (cost) and capital (cash) or another infusion of equity into your business = your business expense or how much you pay for it.

Equity financing is the most expensive form of financing. Why you ask? When you give up a piece of your companies equity (cash) to purchase cash to expand business and operations, you are giving up an ownership stake. (Best example is Shark Tank – start up businesses are willing to give up portion of business for money investment from the “sharks.”)

Lets fast forward 5 years – you give up 20% of your business for $100,000. You are starting up the business you need equipment and have many other business expenses. “Uncle Louie” lends you the $100,000 and you give him 20% of your business. 5 years from now your business is a success and you are now worth $5 million dollars. That 20% of stake in your company is valued at $1 million dollars. That is a 1000% return on investment, great for Uncle Louie, not so great for you as the business owner.

We at Innovative Lease Services, Inc. want to caution you before you get into capital budgeting decisions. It is necessary to consider the true cost of capital. Equity financing will always be your most expensive option!

At ILS we offer financing solutions with fixed monthly payments over that 3 or 5 year horizon. You always know going in what your cost is going to be, with a defined program and we take no stake in your company. Working Capital will not dilute your equity and you will not be giving a portion of your business away.

Contact us if you’d like to learn more information on Working Capital Solutions.