By Joseph Lizio founder of Business Money Today and is an expert in business loans and www.businessmoneytoday.com
The economy just struggles on. And, it is expected to continue at least until the next Presidential election is over and we set politics aside and get back to the real work. In the mean time, current financial market conditions will remain unchanged - meaning that small businesses, even those that are growing, will continue to have a hard time accessing capital.
- Credit score requirements will trend higher precluding those without the most stellar score from the credit markets while continued economic setbacks of small business owners will push their scores in the opposite direction.
- Positive cash flow requirements will play an even greater role in credit underwriting even while most small businesses are facing declining revenues.
- And, collateral requirements will continue to trend higher; with values of 100%, 150% and even 200% or more.
All bad news for business owners needing a business loan to stay float or to grow and innovate their companies through this turmoil.
However, not all is lost to these entrepreneurs. Here are a couple of suggestions of raising money during this unending slow market:
Leveraging Financial Assets:
Most lenders just want to get repaid. Thus, they want to be assured that a future cash event (either ongoing cash flow or a single, future payment event) will materialize that will repay their loan with interest.
Financial assets do just that. Example, if you invoice your customers, allowing them 10, 30 or more days to pay for products already shipped or services already rendered, then that delayed payment period creates a future cash event that can be factored today for cash - cash to make payroll, pay suppliers or even to win that next job.
Or, your business has already won that next job yet does not have the capital to purchase needed materials or labor to complete it. But, that order already in hand means that your customer will pay you as soon as the goods ship or the service begins. Again, this is a future cash event that can be factored for cash today - cash to actually complete that job and earn your profit margin.
Trade Credit & Vendor Loans:
If your company is seeking a business loan to just purchase materials or supplies, then turn to your partners (suppliers and vendors) for trade credit. It is also in their interest to keep your business alive and well (you are their customer after all). Know that if your company's revenue is slow, so is theirs. And, for them to stay in business and grow their organizations, they need all the customers they can keep (that means you).
If you already have trade credit with your supplier, ask for better terms - terms that allow your business time to convert those goods into revenue of your own.
Or, if you don't have terms with your suppliers, now is a great time to ask. Know that during this long-term economic slow period (since 2008) many suppliers have been offering credit terms to their customers as it not only benefits their clients but offers many benefits to them as well - like added revenue, increased sales and a customer base that is not in decline.
The goal is to try and match the credit terms with your suppliers with the terms you offer your own customers. Thus, your business will not owe your suppliers until you have money coming in from your customers to pay those expenses.
Or, if your business is purchasing new equipment or software from vendors, ask those vendors to finance that purchase.
More and more companies are offering these types of services called vendor loans. They know it helps both parties. Some vendors will provide your company a business loan for the amount you need to purchase their products or services with the only caveat being that you use those funds to buy their offerings.
You get what you need for your business and have to make payments just like you would with any other business loan and they keep you as a loyal customer who continues to buy their products.
Friends and family & Local Investors:
While the news may be trying to demonstrate that most people in this country are struggling day-to-day to make ends meet, it just isn't totally true. There are many people who still have some savings or disposable income and are looking for ways to earn better returns then banks and other investment options are offering.
This means that your friends and family (or even the friends of your friends and family members) may have the ability to float your company a short-term business loan or even invest in your business for a little up-side potential.
And, this source of capital might not be from just those people you know. There are other professionals right in your local community that may have some additional capital that they want to 1) earn a better return on or 2) want to give back to the community that has helped and supported them all these years.
This means asking. Asking friends and family - they are the ones that know you and your business best. In some cases, they may have even been waiting for you to ask them.
Or, get out in your community and network. Attend local events; join civic organizations or networking groups. Talk to everyone. Sell the merits of your business, sell the merits of your opportunity and sell the merits of your products. Get the word out. Then, ask for an investment or loan. After all, money is still money, no matter where it comes from. Your business just might be the exact opportunity that a local investor is looking for.
While this slow economy is predicted to continue for some time, it does not mean that your business has to suffer for it. Put that entrepreneurial hat on and get creative in finding alternative ways to secure a loan for your business in this sluggish market. Know that, when it is all said and done, there will be winners and loser. It is up to you to ensure that your business is in the winning column.