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.
Credit Shortage Threatens Supplier Growth
Detroit Free Press writer Susan Tompor sheds light on the challenges that lie ahead for small to medium sizes businesses, particularly in the manufacturing sector. As analysts proclaim that the recession is over, how do small manufacturing shops access the capital they need to re-set production and re-hire workers? Read the article
Southeast Michigan Has a Lot Going
It is easy amidst headlines of climbing unemployment and bankruptcies abound in Detroit to become disgruntled, frustrated and just plain depressed about the current economic climate and the region’s future. If that is how you feel, you should have been among the 400 individuals that gathered along Detroit’s picturesque riverfront to celebrate the accomplishments of some of Michigan’s most outstanding businesses in technology, professional services and more. The Automation Alley Awards Gala was an fantastic event dedicated to celebrating all of the great things happening in Southeast Michigan - and what prudent time to celebrate. Hennessey Capital was honored to be among those honored. We salute all of the small and medium sized businesses that are making a difference everyday in our region. View the complete list of winners
Where To Turn When Your Bank Credit Line Shrinks Pt. 2: Factoring
Joining us for part two of our previous episode, as we talk more about which strategies work best when your credit line shrinks. In this podcast, we discuss how many entrepreneurs are seeking factoring as an easy and smart way to increase their business’s working capital. The current credit crunch has put a spotlight on factoring - this podcast explains why and how it can be used as a viable option to increase cash flow. We also answer the question; “how does the cost of using asset-based lending or factoring differ from utilizing a bank for funds?” Hennessey Capital President Mike Semanco also shares the one thing business owners should do to keep their business growing during this challenging time.
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A Business Lesson from Basketball
Derek Mehraban, an entrepreneur and social media guru, shares his insights on how businesses can take a cue from the Michigan State University basketball team in his blog post “MSU Spartan Stimulus Package for Detroit, MI”
His post touches on how creating a winning game plan is a critical component to the success of any company and our region. It is apparent that our current economic climate is creating pent up demand for the innovative products and services small businesses have to offer. Those leaders who invest the time now to re-evaluate their company, adjust their business plan and get creative, will surely be rewarded when the economy bounces back.
Small Business Loans Criticized
Monday President Obama released a plan to increase the federal guarantee of small business loans to 90% and decrease fees associated with the loans. However, the action is being met with significant criticism. Read the Wall Street Journal article: Small Business Loans Criticized
CFA Asset-Based Lending Index Reinforces Important Role of Altenative Lenders
An article released yesterday, “Commercial Finance Association Releases 4th Quarter Asset-Based Lending Index” reinforces the important place asset-based lenders hold in the current economic climate. Alternative sources of lending like factoring and asset-based lending, discussed further in episode #1 of Capital Conversations, is becoming an increasingly viable options for entrepreneurs who are still growing their business in turbulent times. Read the article: http://biz.yahoo.com/prnews/090218/ne72275.html?.v=1
