In a credit crunch?
Business financing options are available
Cash is the lifeblood of a business, but thanks to tight credit markets small to midsize companies are increasingly having trouble securing outside financing. During this difficult business environment, your company has options to secure a cash infusion.
Asset-based financing
When using asset-based financing (ABF), a company’s assets, such as current assets (for example, accounts receivable and inventory) or fixed assets (for instance, plant and machinery), are used as collateral. Typically, this is done to meet either short-term (generally offered as revolving or factoring loans), medium-term (typically leasing, selling or leasing back facility and equipment) or long-term needs (usually based on real estate).
On the plus side, ABF loans can be easier to obtain than traditional loans because ABF lenders will look at hidden values on the balance sheet rather than the financial ratios typically used by traditional lenders. But ABF does have service fees and higher interest because many lenders spend time monitoring the collateral, primarily receivables and inventory.
Mezzanine financing
Mezzanine financing combines the concepts of debt and equity financing designed to satisfy short-term or interim financing needs for the expansion of existing companies. For example, you can use mezzanine financing for new growth opportunities, mergers and acquisitions, a management or other leveraged buyout, corporate restructuring or recapitalization, or debt refinancing.
Mezzanine financing generally is easily obtainable and doesn’t require collateral. But your business needs to demonstrate a solid industry track record, reputation and financial performance and present a business plan for expanding.
Options available
The double whammy of the recession and tight credit markets may be crippling your small to midsize business’s ability to secure a loan. But options are available. Before taking any action, be sure to consult with your financial advisor to determine which strategy is best for your company.