Honest small business owners applying for a small business credit line enter banking negotiations with one goal in mind… Show Me The Money!!! Unfortunately in today’s economic market the banks are so quick to accommodate a happy ending. Lending requirements have tightened, regulators are running the show, and businesses are being force to look outside traditional banks to fund growth.
It is interesting, we are living in an era when banks are to big to fail, however small businesses, which are also the largest employers in the US, are too small to support. Needless to say, it is a mess out there in the real world as we work through this period in time.
Several business owners and management teams currently on the bubble within their current banking relationships, do not want to find themselves on the outside looking after loan covenants reviews. In addition, start up companies with less than two years under their belts looking for a small business credit line will find it tough going when meeting with favorite banker. Don’t shoot the messenger I am only delivering the news.
Not belaboring the point, there is some good news for those looking for working capital to grow. Money is available, however many growth businesses will need to look outside traditional banking relationships for funding while the banking industry restructures. So the question remains, who is funding? The answer is accounts receivable factoring companies, asset based lenders, and private investment funds.
It is true, asset based financing may cost a little more than a traditional small business credit line, but the upside is flexibility. Access to working capital will be available to support current sales, but more importantly additional funding to support growth will be much easier to acquire. Businesses with the ability to grow beyond their existing break-even threshold will find factoring or asset based lending a viable means to grow.
Credit lines can be restrictive since most banks will drag small business owners through the entire application process time and time again for every increase. This process consumes valuable time and human resources to secure capital, while your competitors are out trying to secure your future market share. Customers are a fickle group, and will only wait so long before they look elsewhere for products and/or services.
Business owners concerned about the cost of credit and focusing solely on the bottom line may want to reconsider the cost of missed opportunities. Yes, controlling costs while constantly searching for ways to improve the bottom line are sound business practices, however at times it is unwise to do so by retracting top line revenue numbers.
At the end of the day in a perfect world every successful business owner and/or management team has to determine what is more important. The cost of money or the cost of opportunity. One is tangible, the other speculative. In a not so perfect world, this same group will have to examine the cost of private funding or the cost of going it alone without a bank. Unfortunately, many companies looking for a small business credit line will find themselves in this world for a while.
Needless to say traditional banks will come back to the table in time, however for the unforeseen future it will be wise for small business owners to look at the alternative funding market for ways to raise working capital to support adequate cash flow.