The goal of any business is to grow, but what happens when in order to grow you need financing. For businesses that cannot self finance, it can at some points feel like there’s no place to turn. Our company helps solve some of these problems for our clients by matching them with financing & helping them obtain the right kind of financing. We figured we’d throw together a quick blog post for those businesses that prefer to try to do the work in house.
Not having access to adequate capital creates challenges for business looking to make investments to grow. Businesses need financing to support working capital, purchasing equipment or expanding operations. Many business owners don’t realize that pursuing traditional methods such as commercial banks has changed drastically.
Of course, the standard ways to raise money has always been bootstrapping, asking friends & family, credit cards or securing a loan from a commercial bank. In recent years we have seen huge growth in alternative lenders, crowdfunding, online invoice factoring companies and government funding programs.
Although a traditional bank can work for some business owners, in most cases it just simply doesn’t. The bank imposes strict lending requirements and covenants in order to protect their money. In reality most entrepreneurs in the small business category are looking for smaller sized loans as well ranging from $10,000-100,000. Commercial banks normally try to avoid business loans under $200,000 simply due to the costs associated with underwriting the loan. In other words, for the small amount of interest they earn, they don’t recoup all of their investment in time to get it done. Also, in many cases the businesses in question may either not have substantial assets to lend against or they may not have a strong credit history.
Most business owners find this extremely challenging and you can start to feel like your in a system where no one wants to help you. What many business owners fail to realize is that there are a ton of opportunities out there to leverage. Emerging online finance companies may charge you mafia style interest rates (in some cases 20+ percent) but will give you access to capital provided you meet certain criteria. They typically look at cash flow, time in business and business track record. In the case of invoice factoring, you actually sell them your invoices (word to the wise in most cases they notify your customers to pay them and not you so you need to be ready for that). These alternative companies can get you financed in days, not months like most traditional banks.
Government funding can also be a wonderful tool for businesses to leverage in order to take growth to the next level. Obviously the government has strategic sectors that they aim to support, so if you are an accounting firm (or other) it can be hard to leverage government funds. For those that do meet the eligibility criteria, which for the most part includes; tech companies, environmental companies, manufacturing, agricultural/fishing or other non-retail/non-service industries. In some cases governments will match your investment dollar for dollar or even provide non-repayable grants. They do, however, do a poor job of making business owners aware of the opportunities. The best advice is to lookup government agencies & contact them, they will guide you in the right direction.
Financing to grow can be extremely tough for businesses but it can get easier if you take the time to look hard enough.