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Eliminate shareholder loans

Often the founders of the business have put in their own cash to ‘top up’ the business. Investors don’t like putting in their money knowing that you are going to take it out immediately to repay the founders.

Therefore you really need to ‘capitalize those loans’. That means convert the loans from debt that might sit in the liabilities section of your balance sheet to equity. Your accountant can help you do that and assist in determining the value the shareholders loans convert to equity. Often the founders may have loaned different amounts to the business so this process clears up that issue.

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