Wednesday, June 5, 2013

Another FAQ: What about arranging financing?

Q:  "How do I arrange financing to buy a radio station, TV station, or tower?"

A:  Download a copy of "Financing 101" HERE (registration required).

Unless you have a gold-plated resume with a solid management track record, you are probably not going to get the attention of institutional private equity investors. Your best bet to raise equity may be “angel” investors.

Know the difference between debt and equity.  Debt is a loan, usually secured by assets and often with personal guarantees. The money is less expensive than equity. Pricing is generally based on a negotiated number of basis points over LIBOR or the Prime Rate. Terms are usually five to seven years.  Banks generally preferred making loans greater than $10 million, though "home town" banks sometimes look at smaller deals.  SBA guaranteed loans may be an option. But documentation and red tape make them cumbersome.

Equity is ownership. Equity is riskier than debt, so equity investors expect a higher return on their money. In the event of a liquidation, the debt holders generally get their money first; anything left over (sometimes nothing) goes to the equity holders. Pricing reflects this inherent risk. Most equity wants to “cash in” within five years.

Seller financing is sometimes an option.  Typically seen most often in smaller deals, the seller functions as the bank. The buyer puts up a down payment (which must be enough for the seller to pay off his lender if there is one) and gives the seller a note for the balance. Terms are negotiable.

Media Services Group's Providence office is experienced in consulting clients on sourcing the capital markets.

George
Media Services Group