Regional Growth Capital
Investment Without Ownership:
Few choices exist for small businesses seeking growth capital - mainly senior bank debt or expensive equity investment. As they reach their bank's lending limit, business owners may turn to other sources of capital, such as personal credit cards, venture capital or an equity partner. Whereas the latter two options typically require relinquishing some ownership of the company, Regional Growth Capital provides a unique alternative - investment without ownership.
Candidates include emerging companies that demonstrate significant potential for success and value the investment as an attractive alternative to venture capital or other forms of equity investment. Companies from a variety of industry types - manufacturing, distribution, service, and retail - based in eastern Missouri and southwestern Illinois are eligible. Regional Growth Capital makes investments of $50,000 to $500,000 that can be used to help fund organic growth, acquisition or recapitalization plans.
Investment Criteria:
Regional Growth Capital makes investments in the form of subordinated financing of up to $500,000 to qualified applicants. A qualified applicant's profile reflects the following:
- A growing, locally-based company;
- Where the available senior debt is not adequate to finance the company's organic growth, an acquisition or a recapitalization; and
- There is sufficient cash flow to cover the fund's debt service.
As part of the approval process, a committee considers several guidelines including:
- Cash flow coverage
- Management capabilities
- Business plan
- Debt-to-equity ratio
- Personal credit scores of majority and significant shareholders
Price Structure:
Regional Growth Capital's pricing structure is unique in that it provides companies with needed capital without taking equity or options, or requiring a seat on its board of directors. It provides crucial capital, allowing small businesses to accomplish or even accelerate their growth objectives without requiring them to forfeit early equity at a significant cost.
How it works:
- An origination fee of three percent of the investment amount (due at the time the applicant accepts the terms and conditions of the Regional Growth Capital investment).
- Fully amortized payments of principal and interest over sixty months.
- Interest at an annual rate of three to four percent above floating prime rate (with a floor on prime rate of four-and-a-half percent).
- A risk premium (payable at the end of the term) equal to cumulative fees of 10 to 15 percent of the original amount of the investment for each year, or part of any year, that there is an unpaid balance. The risk premium is compensation in recognition of the relative risk taken by the Funds and its contribution to the enhanced value of the client company.
- No pre-payment penalty (i.e., the risk premium stops accruing as of the year any early final full payment is made).
- Personal guaranties required.
