Wednesday, August 7, 2013

When the Bank Says No..

When businesses need money, the first call is to the banks. They offer affordable rates and long term solutions for businesses that are approved. But where should businesses look to if the banks say no?

“My company is only 2 years old and the bank says I have not been around long enough”

This is a story that several new business owners tell when they are looking for financing for their business. They might have great sales and a strong business plan, but the bank is fairly strict on handing out money to new start-ups. Banks like dealing with businesses that have been around for 10 years and have a model that keeps them consistently in the black. While your business builds toward getting approval from the banks, alternative financing can be an affordable option that does not affect the future growth of the company.

“So what can I do?”

A great option for businesses that are growing rapidly is, alternative financing. Whether it is financing receivables, hard assets, equipment, inventory, or even purchase orders; they can all be secured by the lender to provide financing. Through a revolving credit facility or a loan against the asset, financing options are readily available for business plans that make sense. One of the biggest benefits of alternative financing is the flexibility it can provide to any client. It is well documented that banks require several covenants, while alternative lenders can be very lenient on how funds are dispersed.

“How will this help my company?”

For businesses that are running successfully but are stretched out for cash, this is a great solution to help financially manage growth. While most businesses look at raising equity as a more viable solution, it can be a much more expensive in the long run. While alternative financing is often considered expensive debt; it is considered very cheap compared to raising equity. By raising equity, you add an additional shareholder and funds that can be used towards the business. However, if profits for the company begin to grow, they will be shared based on percentage of ownership. In most cases, adding an additional shareholder to the company entitles them to decision making power based on the ownership they have in the company.

While alternative financing might seem like a costly endeavour in the present, we try to advise clients to look into the future. We see alternative financing as a temporary solution for growing businesses and a bridge to businesses whose payables and receivables do not line up.

Feel free to send me an email if you have any questions or would like additional information. 

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