Funding Alternatives When Banks Say “No!”

February 24, 2017 Scott Simpson

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”.

About the Author

Scott Simpson

Scott is president and CEO of BlueTarp. He has spent the majority of his twenty year career in financial services helping businesses grow more rapidly through the effective use of credit.

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