Securing traditional financing through banks and other financial organizations remains highly challenging for many businesses. As banks pull back more traditional commercial-and-industrial lending, they are often unable to lend even to small businesses with solid financials. And as their security demands increase, some companies are pushed into distress or unable to take advantage of commercial growth opportunities.
If your company is performing well, you may sill find it difficult to secure sufficient growth capital from your current lender- even though you are growing according to projections. Refinancing a previous line of credit can help support your company’s continued domestic and international growth, especially if your company is stuck in a credit facility that was put in place when your performance was not as strong. Your previous small business loan may have been appropriate at the time, but after a couple years, the pricing may no longer be appropriate for current performance.
It’s a real sign of the times when banks stop or restrict advances against inventory due to internal changes or re-organization. For example, it’s common for lenders to deleverage the inventory financing available to a company and restrict additional funds – even if a company’s numbers are growing.
So what do you do if you’re doing great, but your bank isn’t?
When a bank makes their problems your problem, your business can fall victim to high pricing and/or reduced growth capital due to circumstances at the bank that have nothing to do with your own company’s performance.
In order to capitalize on upcoming commercial growth opportunities, businesses need financing that is affordable and intelligently structured. It is important to look for a lender that recognizes this and is able to refinance your line of credit and increase borrowing availability to support your company’s continued growth.
An experienced alternative lender can secure a credit facility that serves to refinance your previous line of credit. In addition to helping you solve any funding problems created by the bank, an alternative lender may also find it appropriate to work with affiliates to successfully structure and arrange an optimal financing arrangement.
Alternative small business lenders can refinance with the same or more capital than what businesses had before – even if your company is not meeting the bank’s lending criteria due to their own internal changes or your own modest performance fluctuations. The cost may be more (due to risk associated) but you can recover the funding base you had before at the bank till your company is recovered and back on track – then you can sweep back into a bank relationship.
How to secure alternative financing to eliminate working capital constraints and fuel growth
While alternative financing may provide the solutions you seek, your marquee bank is most likely not going to offer you alternative lines of credit. They won’t even direct you to an alternative division of the bank that may better serve your evolving needs. Banks often lack free flowing communications between divisions and tend to be more interested in managing portfolios and profitability. Banks are often more likely to change credit lines to meet the bank’s needs, not the client’s needs.
If your performance and needs are small enough to fit into the bank’s narrow criteria, bank borrowing can be a great option for funding. But if you don’t fit into the bank’s narrow strike zone, that’s where alternative lending can add value. Alternative lenders can help you secure a larger credit facility over a wider array of assets and also provide additional strips of capital for owner liquidity based on the strength of the company and value of assets. They can often provide you with better debt structure, lower cost of capital, and higher advance rate on A/R and inventory.
Alternative financing can also help you in transitional situations and can provide full facility until you can move back into a bank relationship. When bank borrowing is not an option or sufficient for securing adequate working and growth capital, businesses must look to lenders who serve clients by getting to know their business beyond a small box profile, and are therefore able to see opportunities and provide solutions as unique as each business model.
At US Capital Partners, we are lenders, advisors, and lead arrangers who always look out for the best interest of clients. We have wide array of products to offer – so we are able to keep their best interests in mind. We pride ourselves at looking at needs of each client very closely so we can offer the most comprehensive refinancing package at the best price.