Five Benefits of Working with Nontraditional Lenders vs. Bank Lenders
By Jeff Bardos CEO, Speritas Capital Partners
November 8, 2018 – Connecticut
Traditional bank lending options are often not available or are insufficient to support rapid business growth. Banks are risk averse.
What Do Traditional Lenders Look For?
Your company needs three strong legs to support a traditional bank deal – strong credit, strong collateral and steady and growing net income.
The reality is that banks face intense regulatory scrutiny of their credit and compliance policies and as a result can be risk-averse, especially when it comes to the small business community.
On top of that, owners and managers of small and medium sized businesses have little time and few resources to devote to expanding bank relationships and exploring alternatives.
Fortunately, there are many alternative financing techniques available when traditional financing is not available. These alternatives help you stretch your equity into higher revenues and possibly avoid the need for additional equity altogether.
I recommend that growing companies consider nontraditional financing options and nonbank lenders to fund rapid growth in a strategic way.
But not every CFO knows what kind of options are available in the alternative financing space when their bank can’t help. Using a debt advisor or loan broker can help you expand your financing options.
Consider this Scenario
You’ve invested all your savings in your business. You’ve probably asked friends and family to invest. Maybe you’ve been lucky enough to raise equity from investors through a Series A or B round.
The good news is your business is growing. The bad news is your growth is outpacing cash flow growth. As a result, cash flow is tight, staff increases are constrained, and you’re thinking about whether you need to raise more equity. But that is time-consuming and will dilute your existing investors.
You’ve talked to the friendly neighborhood lender. But since you’re growing rapidly and investing all your cash into the business, your profitability (or EBITDA) is flat or negative.
Without strong cash flow, plus good credit and sufficient collateral, most traditional lenders won’t lend.
Alternative Financing Options with Nonbank Lenders
Alternative, or nonbank, financing approaches are tailored to your company’s strengths. Do you have good collateral – either accounts receivable, purchase orders, equipment, inventory or intellectual property?
Consider asset-backed financing such as equipment finance, factoring or asset-based lines of credit. Asset-backed lenders focus primarily on the collateral, then credit, then cash flow and can fit in fast growth situations.
Good credit? That “asset” can be leveraged into unsecured lines of business credit. Fast-closing SBA loans and bridge lending are other possibilities.
So what can you expect when you venture into the nontraditional lending space?
Nontraditional lenders provide a much wider range of loan options than traditional bank lenders. At Speritas Capital, we focus on 3 general areas for nontraditional lending – asset-backed finance, business acquisition and expansion loans, and commercial real estate.
(In the asset-backed space, we’re talking about accounts receivable financing, factoring, equipment and inventory financing, purchase order financing, broader asset-backed lines of credit, mobility financing, venture and mezzanine debt. Real estate options include bridge, construction and permanent financing.)
Nontraditional lenders can help in a wider range of industries. They can lend to companies in nearly every industry, including manufacturing, services, exporting, even government contractors.
Nontraditional lenders can help in a wider range of company stages. They can work with companies at every stage of development and do not have time in business minimums. That being said, nontraditional lenders are NOT equity shops and sometimes equity is the best and only financing option.
You can expect innovation and creativity in structuring a loan. Nontraditional lenders focus on sources of strength – management, collateral, current and projected earnings, personal or business credit, sponsorship. Unlike traditional lenders, nontraditional lenders don’t require strength in ALL these areas.
Alternative financing sources can help you squeeze more out of your equity. By being creative with nontraditional financing, nonbank lenders help companies squeeze more out of their equity and extend the time between raises and potentially minimizing dilution.
If you still have questions about what to expect from nontraditional lenders, reach out to me via text / call at 203-247-4358.
At Speritas Capital, we have over 30 years of experience working with small and medium sized businesses and commercial real estate investors. Our relationships with over 100 national lenders and private investors give us the product breadth to assist clients in identifying funding options that go beyond what traditional lenders can provide.
We can help identify the right lender option and work with you to develop the best loan structure, whether it is bank or nonbank funded.
Speritas Capital Partners specializes in difficult credit, collateral and cash flow situations and we never take upfront fees.
Speritas Capital – 14 Relay Place – Cos Cob, CT 06807