One option for obtaining much-needed capital for your business is choosing to sell a large quantity of stocks for cheap. While using inexpensive stocks as a way of raising capital may not seem like a mainstream or even often-chosen solution, the fact is, when forming a startup, getting cash contributions to it in exchange for stocks is the number one way to get the funds you need to get your business up and running. While you can certainly rely on traditional loans from family, friends, and financial institutions, by opting to sell off a bunch of inexpensively-priced stocks in exchange for capital, your repayment terms will be much more flexible, and will most likely not involve traditional monthly payments.
Cheap stock is a great choice because business owners will be able to take the time to increase their equity, rather than rush to try and get funds flowing in to the business in order to start repaying loans. As an added bonus, keeping the estimated value of your stocks low is a great way to reduce the number of taxes levied against you by the IRS. While you may initially not like the idea of setting the bar so low, so to speak, the definite benefit in doing so is that you’ll be able to sell more stocks right off the bat, and in time grow the value of those and other stocks. Investment firms such as John Ferraro Ernst & Young can help you assess stocks for potential current and future value.
If you’re considering using cheap stocks as a way to get capital for your business, consider starting your business with thousands or even millions of low-cost common shares, with some set aside exclusively for founders and private investors. But you should have the overwhelming majority of your low-cost stocks available to any investors, as the more stocks available, the more shares bought into your company, and thus the more likely it is that you’ll get the capital you need in a much shorter time frame.
When it comes time for funding, a strategy based on cheap stocks should have at least 10 million shares available. At least half of these should be considered preferred stocks, which could earn the company as much as five million dollars. Even the lower-priced remaining 5 million shares could still raise a million or more for your startup venture, which is most definitely a significant amount of money that can make the difference between getting going or having to find other sources of funds.
Cheap stocks are favored by many private investors because they too know how the stock game is played, and they know that a stock that is cheap may not necessarily be a stock that is low in value. You can lure in many financially sound investors by choosing to sell off stocks cheaply, which can result in great capital earnings for your company.
If you’re on the fence about cheap stocks versus the traditional stock pricing, consider doing a little bit of both. This way you’ll give your company a chance to reap the benefits of selling stocks for cheap, while at the same time not entirely stepping out of your comfort zone.