888-983-1617 [email protected]

Help Me With Options For Obtaining Capital

Ask Us Anything

Dear Oaklyn Consulting,

I have a business that needs a cash inflow. However, my local bank is not willing to provide more credit. What other options do I have to obtain capital, and what are the pros and cons of each alternative?

 

From Oaklyn Consulting

This is a classic dilemma for entrepreneurs: an idea for the future which could become real if there were more money to spend on getting it going.

Too often, however, the dilemma results from not understanding how businesses use and deploy capital. Here are some things to consider:

  1. Why does your business need cash flow? Could it be that sales are too low? Expenses are too high? Equipment needs to be purchased? The payment cycle, from doing work to billing to getting paid, is too long? Maybe you are paying yourself too much to be supported by the current size of the business?
  2. If your business had additional cash to invest, what would the return on investment be? Will money fix the problem that is causing the need for cash inflow? If you add cash to the business, will the improvement in the business be large enough to pay the person who provides the cash for the use of that capital? How much risk are you asking someone to take that fixing your business’s cash needs will result in a good outcome?
  3. What are you offering the provider of capital to help minimize the risk of repayment? Capital investment tends to be organized around categories of risk based on collateral, and in each case, the capital provider is an expert in the risk/return characteristics of both your business and the collateral. For example:
    • Banks tend to provide liquidity by lending cash (a liquid asset) on the basis of fixed assets, like a building (an illiquid asset). So bankers know a lot about real estate values.
    • Factors advance cash against accounts receivable, helping businesses have cash earlier in order to pay bills. So, factoring companies know a lot about customers’ payment patterns.
    • Equipment lenders spread the payment terms of equipment purchases over time, providing money up front to purchase the equipment and maintaining a lien on the equipment in case of nonpayment. So equipment lenders know a lot about the resale value of industrial equipment.
    • Venture capital investors tend to finance the up-front sales and marketing costs needed to acquire long-term contracts. So venture investors know a lot about efficient sales processes and the economics of long-term contracts.

Your options for getting the capital that your business needs and the related pros/cons are determined by 3 things:

  • What specifically do you need the money for
  • How convincingly you can tell the story of how this capital will be repaid over time
  • Matching the capital provider’s expertise and your business’s specific uses for their funds

At Oaklyn Consulting, we help business operators communicate effectively with capital providers and negotiate successful capital transactions. If you’re struggling with the decisions about how to find the right capital for your business and make a convincing case to lenders or investors, we can help.

We're Here to Help

Have a question for Oaklyn Consulting? Enter your question below and we will incorporate your question and our response into an upcoming edition. 


News & Insights

Oaklyn Consulting

Selling and Retirement

Ask Us Anything Dear Oaklyn Consulting, I’m 61 years old and have been working in/running my business for 40 years. I want to retire and I don’t know if I can find a buyer that will pay enough to allow me to retire comfortably on the proceeds. What options should I...

Oaklyn Consulting

Is Now The Right Time To Sell My Business?

Ask Us Anything Dear Oaklyn Consulting, For the last five years, I’ve been making 65% to 75% gross profit. I know in the next few years, gross profit is going to shrink because of new competition coming into the market. What advice do you have for me to consider...

Oaklyn Consulting

How to Navigate Business Debt and Equity Options

When closely held businesses need capital, they generally have two options — getting a bank loan or seeking out private investors. While a loan isn’t going to be a viable solution for every liquidity need a business has, it can be significantly less expensive in...

Oaklyn Consulting

Help Me With a Conflict in My Family Business

Ask Us Anything Dear Oaklyn Consulting, Three members of our family business (a father and two sons) are not getting along. The father isn't retiring and wants to control the business, while the sons would like to sell the business. What advice do you have for the...

Oaklyn Consulting

Help Me With a Succession Plan

Ask Us Anything Dear Oaklyn Consulting, It’s been a really hard year. I own a business that I’ve been successfully running for the last 15 years. I’ve had some health troubles that have pushed me to a position where my doctors are suggesting that I need to retire...

Help Me With Acquiring a Business

Help Me With Acquiring a Business

Ask Us Anything Dear Oaklyn Consulting, I am a business owner who has a substantial local presence. I’m considering acquiring a competitor that has a larger presence outside my current market. This move would expand our footprint immediately and give us the...

Help Me Develop a Sellable Asset

Help Me Develop a Sellable Asset

Ask Us Anything Dear Oaklyn Consulting, I don’t know if it’s the economy or the time of year, but it feels like every time I turn around, there is another M&A firm calling to see if I am in the market to sell my small business. I know that this is something...