Raising Money
by Ben McLane, Esq.
Many struggling artists have the need to record some music or finance a tour, only they
lack a necessary element: money. This article will explain different ways to raise
capital in order to finance a project.
SELF-FINANCING
In this instance, the artist uses his or her own money. On the positive side, the artist
will: (1) retain artistic control, (2) be free of financial obligations to a lender,
(3) not be bothered with a maze of paperwork, and (4) will reap all of the monetary
benefits. On the negative side, the artist will: (1) bear all of the risk, and
(2) will have to be solvent enough to finance the project (which is probably not
the case).
BORROWING
This involves accepting a loan for a fixed sum of money and agreeing to repay the
sum plus interest by a certain date. Loans usually must be paid back whether or not
the project makes money. There are two basic loan sources:
Commercial Sources. A commercial source of money would include banks, finance companies
and credit cards. In particular, banks generally want to secure a loan with collateral,
such as a home, auto or equipment. (If the artist is established, copyrights might be
acceptable collateral.) Unfortunately, most artists are not in a position to have
collateral in place. However, if an artist has some credit cards and has been paying
rent consistently, a bank may loan the artist a small sum. Otherwise, if the artist
does not qualify for a loan, the artist can ask a relative or friend with a good
credit rating to be a co-signer for the loan. Because the co-signer is agreeing
to make the payments if the artist does not, a co-signer is accepting a great
responsibility.
Family And Friends. Normally, family and friends will lend money at a lower rate of
interest with a more flexible repayment schedule. The downside of this type of loan
is that there is a strong potential to strain the relationship if repayment becomes
a problem. When obtaining this type of loan, the artist can prepare a simple
promissory note. For example: "On or before December 31, 1995, Artist agrees
to pay Lender the sum of $2,000.00 plus 8% interest from April 30, 1995, signed,
Artist."
INVESTMENTS
Another source of money is investment from a financial backer who can be either active
or passive. An active investor will put up money and become involved in the management
of the project. This type of arrangement includes a general partnership, joint venture
or corporation. A passive investor will put up money but have no role in the management
of the project. This type of arrangement is usually a limited partnership, and the
artist has to be careful when accepting money from a passive investor because there
are security law regulations which may apply. Thus, a professional should be consulted
before choosing this latter route.
Copyright 1998, Ben McLane
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