How many of you doing business now need a quick and short term fund? And you have no property to pledge to the lender and you cannot refinance anymore. Your friend said you are trustworthy and see that your business got good profit every month!

My boss asked me that his business is very good and should I borrow more money to trade? He had just refinanced and can no longer refinance or pledge property to borrow more. He also told me his friend is willing to borrow 1 million with interest of 1% per month. The big question to my boss is also can you secure my 1 million? The other small question from his auditor is the 1% interest expenses are non-tax allowable, then his lawyer said your friend has no money lender license and cannot charge interest.

My boss is so convinced he can use the 1 million to earn more than the interest, the problem is how to bring in the fund easily?

So, how can you solve the 1 million borrowing problem for SME?

My quick answer to my boss friend is can you accept the 1 million security as part of company shares in your business?

Let back to the basic of raising fund for business, which is only two way, either debts or equity

Debt must be paid back regardless of the company financial situation, but it generally costs less to obtain after tax.

But, Equity gives up ownership but does not need to be paid back. Both forms of capital fundraising have their advantages and disadvantages.

So Preferences shares are a type of hybrid security, falling somewhere between debt and equity.

So how to issue preference shares to raise funds for SME? The interest can be book in a company account and if the company fails to pay the back the loan it convert reduces the risk of borrow and be in control of the company?

1. Determine the value of the company and % of ordinary shares of the company is equal to 1 million, for example 30% of company shares
2. Issue accumulated, convertible preference share to raise 1 million with interest of 12% per annum
3. Determine the mature date of repay back the full loan with interest, for example 1 year
4. Once the money received, pay monthly 1% interest from your trading profit as dividend
5. After a year pay back the loan of 1million

What if the company fails to commit the interest? The preference shareholder can convert the share to original shareholder and attend the AGM. Alternatively, the preference shareholder could even appoint a director to the board of directors to oversee the business activities, so his investments are highly secure. There are plenty of arrangements and terms to structure preferences shares, if you could contact me for free coaching, to find out what is right for your before making a decision to raise funds with preference shares.

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