When Your Bank Says No - Five Benefits of Working with Nontraditional Nonbank Lenders vs. Bank Lenders
By Jeff Bardos, CEO, Speritas Capital
January 19, 2021 – Greenwich, Connecticut
Call or text Jeff at 203-247-4358
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Many companies will end up being turned down by their local bank because their high levels of growth are not a fit with the bank's risk profile.
Traditional bank lending isn’t often available to support the debt needs of businesses experiencing rapid business growth.
The bottom line is that banks are risk averse and heavily regulated.
If you were recently turned down for a commercial loan by your bank, below are a few reasons why - and some alternative, nonbank ideas for funding your growth.
What Do Traditional Lenders Look for in Order to Fund Your Loan?
Your company needs three strong financial legs to support a traditional bank deal:
Strong credit
Strong collateral
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 or business owner knows what kind of options are available in the alternative financing space when their bank can't help.
This is the time to make use of an experienced debt advisor or loan broker to help you expand your financing options.
Scenario 1: Your Bank Turns You Down for a Loan
Let’s say 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 raising more equity 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. You leave with a handshake and a ‘sorry, we can’t help you’.
Without strong cash flow, plus good credit and sufficient collateral, most traditional lenders won’t lend, even to a good, existing client.
Alternative Financing Options with Nonbank Lenders
Alternative, or nonbank lenders, take a financial assessment approach that is actually tailored to your company’s strengths. Nonbank funding of small to medium sized businesses has been increasing over time.
Do you have good collateral?
Nonbank lenders will look at your accounts receivable, purchase orders, equipment, inventory and intellectual property.
Do you have other assets?
Nonbank lenders will 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. ABL can fit in fast growth situations.
Do you have good credit?
That “asset” can be leveraged into unsecured lines of business credit. Fast-closing SBA loans and bridge lending are other possibilities for small businesses with good credit.
Questions about nonbank lending? Schedule a call or send an email to the author, Jeff Bardos, now.
So What Can You Expect When you Venture Into the Nontraditional Lending Space?
FIRST - Nontraditional, or alternative lenders provide a much wider range of loan options than traditional bank lenders. (We are NOT talking about MCA, which Speritas does not recommend to clients.)
At Speritas Capital, we focus on 3 general areas for nontraditional, aka, nonbank lending:
(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.)
SECOND - 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.
THIRD - 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.
FOURTH - You can expect innovation and creativity from a nontraditional lender 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.
FIFTH - 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
Speritas Capital’s 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 bank lenders can provide. In fact, we’re often referred by our bank partners when they can’t help a bank client!
We have over 30 years of experience working with small and medium sized businesses and commercial real estate investors.
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.
Ready to talk about your funding options? Schedule a call with the author, Jeff Bardos, email, or call/text him at 203-247-4358.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 30 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your financing questions
Schedule a call with Jeff using our online scheduling tool.
Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.
Because Speritas Capital is a debt advisory firm, we have access to a wide variety of lending structures. We’re not beholden to any one lender so we can use our creativity and experience to design a financing structure that truly fits the needs of our clients.
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