04 / 12 / 2019

What are the potential problems for people seeking capital in the United States?

A business plan as a necessary element in planning capital acquisition and management


            The opening of the company in the US is accompanied by the development of a coherent and detailed business plan. The business plan should cover all financial aspects as accurately as possible, including the company's sources of funding. A business plan is the basis for applying for capital from external sources when entering the US market (for example, when applying for a bank loan)


Problems with the interpretation of regulations and financial contract records


An entrepreneur in the US should determine the local jurisdiction of his company for legal, tax, and financial and accounting needs, because the country has a dual legal system (federal and state). What's more, raising capital in the US is also associated with the preparation and reading of multi-page contracts, in which the terms and conditions of financing are set out in great detail. All ambiguities are often referred to the courts by banks, clients or contractors. Therefore, running a company and raising capital usually requires the employment of an financial advisor who is very familiar with financial matters.


Problems with access to capital from a bank loan


            American banks have learned from the global financial crisis of 2008 and increased the level of protection against their own credit risk. This causes more difficulties for entrepreneurs in raising capital from this source. For example, the lack of a customer's credit history is for many banks a factor excluding the possibility of granting a loan. American banks will grant loans much more willingly to a branch of an existing company, which has been conducting business for some time in the US, than to a newly established enterprise. This creates big problems for people seeking to set up a company in the US.

In the US there is also no federal limit on the amount of rates of interest that banks can charge, which is a problem especially for small and medium-sized enterprises. American banks dictate higher rates of interest for companies with lower creditworthiness and companies operating on the American market for a short time.

An additional problem is the fact that property owners also have the right to demand from the entrepreneur information about the credit rating awarded to him (FICO score). The owner of the property makes the rent dependent on this information.

A certain alternative to a bank loan is a contract with US investors to create a startup. The entrepreneur guarantees investors the purchase of bonds with a guaranteed option to buy shares in the company in the future (convertible notes).

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