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Dear Oaklyn Consulting,
My business has weathered a tough period and needs an infusion of cash to make it through the next few months. My local banks keep declining my applications. What nontraditional sources of capital do I have left? What are the risks and benefits of private lenders or bringing in an equity partner compared with a regular bank loan?
From Oaklyn Consulting
It can be tough when your business needs a cash boost to get through a rough patch and traditional banks aren’t opening the door. But there are other ways to access capital that might be a fit for your current situation.
First, get clear about why you need the cash. Is it because sales have slowed, expenses have risen or customers aren’t paying you promptly? Pinpointing the cause of your budget concerns can help guide your options.
If banks say no, a private lender (an individual or a firm) might be willing to loan you money based on the story of your business instead of following strict credit criteria. Although their terms may be more flexible, the cost is often higher, and you’ll likely need to provide a personal guarantee to the lender — which would allow them to go after your personal assets if you’re unable to repay them.
You could also bring on an equity partner. Selling a stake in your business can bring in capital while avoiding the pressure of monthly payments. Your partner may bring helpful experience and contacts that help grow your company, but in return, you permanently give up some control and a portion of your future profits.
Another option is to sell your accounts receivable to a factoring company, which provides immediate cash flow without new debt. The tradeoff is that their fees can add up, and you might strain some customer relationships from the factoring company taking control of collections.
If you’re having trouble choosing and need expert guidance, Oaklyn Consulting can help you match a capital provider with your business’s unique needs, goals and risk tolerance. We can also assist in telling your business’s story to lenders or partners in a way that builds confidence.
