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.
What Do Traditional Lenders Look For?
Companies need 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.
Alternative Financing Options
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.
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 60 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 option and work with you to develop the best structure.
We specialize in difficult credit, collateral and cash flow situations. And we never take up-front fees.