Business Loan Options If the Bank Says “No”
Gwinnett CPA Helps Discover Alternative Funding Sources
Located as a faith based CPA firm in Santa Rosa Beach, John Dillard CPA of His CPA has helped hundreds of business owners know when to obtain a loan, help them find the loan, guide them on how to use it and how to repay it. Although these options are often the last resort for a small business owner they are often the difference between huge success and failure. I have watched personally and in the news many companies who would have not grown to the success achieved had they not had an angel investor to come alongside them offering support and much needed resources in a time of dire need. Although you never want to show up in such a state of emergency you will sign anything to ensure your business’s survival, these options can provide a vehicle whereby you can obtain your goals and aspirations without having to “give up the ship” to accomplish your dreams.
Often companies will reach a defining point in their growth where a business opportunity will present itself which is so advantageous that it is both economically viable and critical to be sensitive to address opportunities as they may only be presented once. This is not to say that you should jump on every opportunity that comes along, since many of your successes will indeed be determined by the opportunities you do not accept. However, often scenarios will be so appealing in terms of competitive advantage, market share, and profitability that even with higher fees and the sharing of the equity of your company that it would be unwise not to accept and pursue appropriate profitable business options.
There are no negative business stigmas associated with any of these options they are just different from traditional lenders in their approach and tact in satisfying just and sound business lending decisions.
SBA Loans
The federal government provides a small business lending program geared towards helping owners whose ideas and business plans are very worthy business models, ventures, and plans but because of a lack of a more substantive net worth, history, or credit is unable to get a loan using more traditional sources such as a bank or savings and loan. Because the federal government subsidizes SBA loans, there is an additional layer of paperwork, documentation and fees associated with them due to the supplemental work to be performed. Typically the debt to loan equity ratios are similar to traditional lending scenarios but often the call provisions are less onerous than your would find in your typical bank.
Due to the extra work to be done you can expect that the loan will take several weeks longer as the detailed information required is being accumulated. You can expect that you will have to provide not only what a traditional source would request and even more, as all criteria have to be met before a loan can be extended and consummated. Often if you have substantive capital equipment or you are financing owner occupied property then the SBA is able to include in the scenario a limited amount of funds to help finance additional cash needs that a line of credit would normally address.
The SBA loans will typically bear a degree of additional risk that a bank would not be able to consider, however they are usually not able to assist in a venture which is more speculative in nature, the risk appears to outweigh the reward, or the business model, economy, or business climate in your specific geographic area appears to be less advantageous. SBA loans are done in junction with many banks who act as a conduit and have special departments set up to assist and provide this very invaluable process.
Factoring
In the event that your financial statements and net worth do not evidence or support a bank offering many of their traditional services, you still have many other options. Of those includes going to a factor/asset-based lender who will evaluate your ability to repay a loan based upon the strength and quality of your receivables.
Rather than focusing predominantly on your financial statements a factor will utilize the strength of the credit worthiness and soundness of you billing process, and integrity of your receivables as a basis to evaluate their ability to extend your firm credit. This is especially meaningful as often a business will be presented with a growth opportunity which will require financing well beyond their ability to either internally fund the growth or from traditional sources. Often during the initial stages of high growth periods the internal financial will not yet reflect the viability and even the profitability of a new opportunity as the company “gears up” by adding staff, infrastructure, and assets to meet the new orders being placed and delivered.
It is to this end that Factoring is a splendid vehicle to bridge the gap during the heightened growth as the company expands to meet the need and new orders being placed.
Venture Capital
Perhaps one of the most difficult and potentially most rewarding alternative funding sources is Venture Capital. Often referred to as an “angel investor” a VC (Venture Capitalist) has often been the right investor at the right time sweeping in to provide the needed monies for a company to go the next level. Often entrepreneurs who have the original idea or niche are what provide the company the success that allows it to initiate the business itself.
As a business grows and adds employees it will frequently experience substantive growing pains as it strives to go from a “mom and pop” family owned business to one that is professionally managed. During this time the company will seek out professional operational and financial managers whose experiences and training allow them to add the needed layers of infrastructure which will help guide and control business decisions being reach as well as many practical applications such as just in time inventory systems, state of the art delivery process, and real time computerization of many of the past manual processes.
Venture Capitalists will typically review many business proposals in a given year but might only make just a very few. Accordingly it is wise to develop this needed infrastructure before you approach them, as you will need to explore ways so that your business, its management, and your ideas and vision stand well above the crowd. Although a Venture Capitalist hopes all of his financing opportunities are successful they are cognizant that this will not occur so they are careful to exercise a great deal of due diligence. Thus having a solid business plan and protecting the integrity of your intellectual property, ideas, patents, copyrights, and client lists are all critical issues of an everyday business and even more so of those seeking Venture Capital.
Regardless of how it seems, when your banker says no, it is not the end of the world but perhaps the revelation of a new and exciting option for you to discover. We work with business to help unveil the nuances of alternative funding options and to find one which best suits your needs. I am looking forward to your call.