What to Know on Private Hong Kong Companies and Private Debt Financing
Private debt financing is the go-to option when a private company needs to raise funds and needs it quick. There are many kinds of private debt financing which are offered by various financial institutions. Learn more about Private Debt Financing for Hong Kong Companies below.
After the Global Financial Crisis of 2008, banks that have traditionally been the source of debt providers have cut back on their lending activities after stringent banking regulations were introduced. The stricter banking regulations subsequently created a void in the market, which was soon filled with private debt fund managers from financial institutions.
What Is Private Debt Financing?
Unlike public companies, private companies do not have the privilege of putting their stocks up for public offering, which leads us to the question, how does a private company gain or raise funds? The answer is none other than debt financing.
Private debts are debts held or extended to private companies. In the simplest term, private debt refers to private lending. A private company raises funds by selling their equity or a certain percentage of their own through the means of loans and credit lines. For private companies, private debts are a preferred form of financing due to the ease of funding. Private debts are seen as a low-risk yet high yielding opportunities and approach to equity to many investors.
Is Private Debt Financing for Me?
To decide whether or not private debt financing is for you and your company, we have compiled a list of pros and cons below. Take a look.
- Maintaining ownership
Owners of private companies that choose private debt financing do not have to give up their company ownership, unlike public companies. One can have full control over their business and operate it without outsiders meddling.
- Tax reductions
Technically speaking, when a company repays the loan, it is considered as part of the business’ expenses. This would mean that the payments are tax-deductible; therefore, your tax obligations will be lower at the end of the year. Aside from that, tax deductions also lower your interest rates.
- Cash and collateral
Your company will probably be asked to put up an asset as collateral for debt financing. This is usually done by the lenders to protect their interests; in a case, if you fail to generate sufficient cash flow, the collateral makes up for it.
- Impacts credit rating
Private debt financing affects your credit report. The more money you borrow, the bigger the risk poses to the lenders. With every subsequent loan, you will be charged with a higher interest rate, especially for companies with a low credit rating.
The Bottom Line
At the end of the day, private debt financing is a huge decision for any company. Therefore, before choosing to go into private debt financing, make sure you thoroughly understand the stakes and risks of making that decision. You can always reach out and engage the services of an experienced corporate professional to inquire more about private debt financing.