If you’re a typical dealer of windows and doors, you need a $1.5 million line of credit (LOC) for every $10 million in business. Accordingly, if your revenues are $5 million, a $750,000 LOC is what’s required. This level of funding assures you’re not chronically cash hungry, and have funds for early-pay discounts, inventory, strategic investments, or even a recession.
Finding a bank is its own challenge, and then there’s an added hurdle: What if the bank says, “No”? Here are some alternative sources of cash.
Mezzanine Debt: “Mezz debt” is a category of capital that sits between secured senior debt, which is secured by assets and equity (e.g. stock in the company.) Mezz debt should be complementary to a LOC, and you typically access a revolving credit facility or a term loan. The mezz debt provider is subordinate to your existing bank line in the event of a bankruptcy. The cost of money will be high, and the mezz debt provider will require warrants in your company. Providers include: Merion, Caltius, Digital Partners.
Short Term Loans: There’s a crowded field of providers for short-term loans. They offer quick cash infusions, but watch for hidden fees and high interest. Some advertise rates “as low as 9.9%,” but after origination fees, and depending on length of the loan, the effective rates run much higher. Providers include: OnDeck, Kabbage, CAN Capital.
Interested in reading the full article? Check out: Funding Alternatives When Banks Say “No”.
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