Equity Line Financing Structures

Equity Line Financing Structures are a form of funding used by companies to raise capital for growth, acquisitions, paying down debt, to purchase equipment or any number of other uses. They are fairly common and seem to have gained in popularity and usage in the past 10 years.

The way the equity line financing structure works, is that the company must first register shares of stock with the Securities and Exchange Commission (SEC). Some non-U.S. companies are in jurisdictions that do not require registration and this makes the process less costly and faster to implement. Once the shares are registered with the SEC, the company then has the discretion to "draw down" amounts based on a specific formula agreed to by the company and the investor in advance. The formula is based on the trading volume and share price of the company's common stock during the period following the date the company sends the investor a “draw down notice”.

Companies will use a Standby Equity Purchase Agreement for equity line financing structures. It is the agreement that sets forth all the terms and conditions including, amounts, timing of the draw downs, pricing formula and the representations and warranties of the company and the investor. It is drafted by the attorney for the investor, and the investors are usually Hedge Funds.

One of the benefits of the equity line is that the company has control over the timing of when to draw down the capital. The investor and company can agree on certain terms and conditions that will give the company more control over the amounts it draws down. Some of these terms include agreed upon discounts based on closing bid prices, cancellation notices and control over when the draw down notices are given. Equity line financing structures should contain terms that only permit the company to issue the draw down notices.

Generally speaking, the SEC will not permit a company to register more than one-third of the company's public float. The public float is that number of shares of common stock held by shareholders who are not officers, directors, control persons or affiliates of any of the aforementioned. If the company wants to register more than one-third of the public float then different rules will apply to the filing of the registration statement, since the SEC will view it as a direct primary offering.

Equity Line Funding.
Learn more about how companies are using various funding vehicles for raising capital . Also, get some tips on the types of investors that are offering Equity Line Funding, how to contact them and how to structure the deal.

Private Placement Funding.
Learn more about how companies are accessing Private Placement Funding to fund their capital needs. Also, get information on how to locate funding sources, comply with important regulatory requirements and get tips on how to structure the deal with investors.

Tips on Raising Capital.
One of the most difficult tasks development stage companies often face is raising capital to grow. Here are some useful tips that might give you a better edge over your competition on sourcing capital and structuring a transaction with investors.

Reverse Merger Funding.
A Reverse Merger, if structured properly can provide a quick alternative to going public through a direct listing. Companies choose this alternative because it helps them raise needed funding by providing access to the capital markets. These types of funding transactions have become very popular over the years with hedge funds.