Management Articles


Business Financing is Still Available but it is Not Cheap or Easy to Obtain

By: Joseph Lizio

Joseph Lizio holds an MBA in Finance and Entrepreneurship and has a strong commercial lending background. In his current venture, Mr. Lizio is the founder of - a site designed to help business owners find and obtain capital to grow their businesses

Let's face it, Banks are just not lending. It does not matter that they received over $350 billion of your money with more to come. It does not matter how strong your business is or how great your credit history. They just are not lending.

Most financial institutions have pulled back credit to businesses. Nearly every well known financial company has stopped offering business programs - be it business credit cards, trade and supplier financing, commercial loans or working capital lines of credit.

These establishments cite poor market conditions and unfavorable economic outlooks.

The quandary comes when businesses, facing the same market conditions, are looking for ways to survive and in some cases grow. In the past, healthy, established businesses could always turn to their banks for needed financing; be it for a short term line of credit or to restructure existing debt; freeing up needed cash flow. Just not so today - especially since part of the blame of our economic toils rests on the shoulders of these same banks.

So if businesses cannot fall back on their bank or other financial institution, what are they to do?

The only real viable financing option for many businesses in this market is private, non-bank lenders. I am not talking about equity capital or private placements. I am talking about investors who have pulled their money out of a falling stock market and are looking to lend it to solid companies in hopes of substantial interest rate returns.

What is this you might ask? There is always a struggle between supply and demand and the arbitrage opportunities that open to investors who know where and when to look.

A few years ago, banks and other financial institutions were lending at rates below or at market level in comparison to potential opportunities - they were offsetting lower returns with fees and deal structure (e.g. ratcheting rates). This left most private investors out of the lending market.

Today, banks are not lending and investors are taking their place. If banks are not lending and businesses need capital - there is a funding gap. This funding gap is wide and does not have many players or competition. Further this gap has huge barriers to entry as capital to invest is not easily obtained or easily given away. What I am saying is that some very smart investors have realized that there is an opportunity here for them to earn substantial returns from lending money to proficient businesses and their owners.

Thus, they are filling the gap left by banks and remain the only real source for business capital. But, they will only do so at very high interest rates.
What I am trying to say is that there are non-bank lenders that will fund companies. But, the power (thus the arbitrage) is in their hands - not yours - making your ability to receive funding both hard and costly.

The products they offer come with high interest rates, huge fees, and deal structures that are extremely favorable to them. These lenders want to see strong (very strong) credit histories, low debt-to-income ratios, and very high repayment abilities. Additionally, should a business have collateral, the property (equipment, machinery, inventory, A/Rs, purchase orders, sales receipts, etc) must be valuable and easily saleable. Gone are the days of 80% and more loan-to-values. Most of these lenders will only lend 50% to 60% against such collateral - especially if it involves a cash out or cash advance option.

Now, I know this does not seem fair - but what is fair in this market? Banks are not lending - businesses need money. You and your business must either take what it can get or get nothing. These investors - the only entities that are still providing money to businesses - could also stop lending if they feel the returns are not there. Then, there would be no business funding at all.

Private investor lending or advance options include:

Accounts Receivable Factoring, Purchase Order Financing, Business Cash Advances, Equipment Loans & Leases and Personal Loans. There also remains a few investor back lenders that will finance the acquisition of a business (without real estate) - all provided the business is cash flow positive, has excellent credit histories (both owners and business) and can provide adequate financials and tax returns to prove it.

Just remember - these are not cheap and by no means easy to obtain - you and your business must still demonstrate a willingness and ability to repay these loans and advances as well as provide (in most cases - Business Cash Advances do not apply here) collateral values that are very favorable to the lender.

But, if this is all that is available - when banks and other financial institutions are not lending to businesses - private non-bank lenders may just be the answer you need to get you though.

© Copyright 2009, Joseph Lizio

The author assumes full responsibility for the contents of this article and retains all of its property rights. ManagerWise publishes it here with the permission of the author. ManagerWise assumes no responsibility for the article's contents.


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