Accessing Capital When Traditional Credit is Constrained
By Mike Semanco, President, Hennessey Capital
What is a borrower to do? Although the traditional credit market is showing signs of life, businesses are still facing a challenging credit market. Hard asset (equipment and real estate) collateral values have dropped dramatically so refinancing of loans requires more cash in each deal. Younger companies still require a track record, typically 2 years, to qualify for traditional lending. Because of constrained credit conditions, companies have to think outside the traditional box to finance their business.
In our business, we have seen companies negotiate preferred payment terms with their customers. Down payments, progress payments and shortened A/R terms are being pursued as viable alternatives. Companies who have normally written off the notion of factoring receivables are now using it as a standalone financing product or using it in addition to current bank lines to fund incremental growth. ABL lines of credit are now more mainstream since most ABL lenders are focused on collateral and not solely on cash flow.
In addition to working capital alternatives, companies are looking at micro loan programs and seed funds to help with growth financing. These loans are usually under $50,000 but can make a difference to a young, growing business. State funded programs are constrained with lack of cash but could also be a source for creative financing. PO Financing for distribution businesses remain a good source of capital but project financing for manufacturing companies is non-existent in the traditional market.
Young companies are traditionally undercapitalized. In a tightened credit market, this creates more stress when new opportunities become available. Communication is always the key. Ask your banker if options exist outside their world. Do be afraid to ask customers what may be available. If customers like your product or service, they may be open to concessions. Ask your professional advisors to make introductions to funding sources. They should be aware of various options and point you in new directions.
Credit is available. You may just need to look outside the traditional box to find it.
Where To Turn When Your Bank Credit Line Shrinks, Part 1: Asset Based Lending
In today’s credit crunch, many business owners are having a tough time finding as many options for needed capital as they once did. The latest topic of the show is “Where to turn when your bank’s credit line shrinks.” This is part one of two, and covers asset based lending.
During this discussion, our interviewer rejoins Mike Semanco, the president of Hennessey Capital.
In the first part of the show, Mike explains what the credit crunch is, and how it affects your business. Mr. Semanco goes on to explain what asset based lending is, and how it can help business owners. This episode is wrapped up with a discussion on other options for financing, in case asset based financing is not the best option for you. Overall, business owners should hopefully find this discussion very informative and helpful.
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Access to Capital Webinar
Entrepreneurs throughout the country are encountering challenges in gaining access to capital. With credit markets dried up and few banks lending to small businesses, it’s become increasingly difficult for small enterprises to get the working capital they need to grow their business. If you are interested in learning more about the financial spectrum and where to turn when your credit line shrinks, register for the upcoming “Access to Capital” webinar.
Thursday, March 18
9 a.m. EDT
E-mail name and company to: Nicole@macombcountychamber.com.
