Winston Rowe &
Associates a national non investment due diligence, advisory and
consulting firm specializing in structuring complex debt, private equity
and institutional financing for commercial real estate.
would like to learn more about lending options for your business from
Winston Rowe & Associates you can check them out online at http://www.winstonrowe.com
common perception in todayâ€™s economy is that commercial banks do not
want to lend. As anyone who works for a commercial bank can attest, this
quite frankly is dead wrong. In fact, commercial banks are clamoring to
put money into operating companies that have annual positive cash flow
of more than $5 million and working capital assets.
standards have stiffened considerably since then, but banks still
desperately want to provide loans to creditworthy companies. They are
flush with cash, and interest rates are at historic lows. The main issue
lenders are having with making loans is that their customers are
showing very little demand for them. Corporations have record amounts of
cash on their balance sheets, and companies that have credit lines
continue to use them at abnormally low levels. While 60 percent was once
viewed as a normal overall usage rate for credit lines, the figure has
hovered around the 40 percent range for the past several years. Asset-Based Loans:
asset-based loan is secured by a companyâ€™s collateral, typically
through its working capital. Collateral used includes accounts
receivable and the raw material and finished goods portion of inventory.
Secured capital can be up to 85 percent of accounts receivable and up
to 60 percent of inventory. There are two main types of loan structures
for asset-based loans:
Asset-based loans are used in a multitude
of business situations. They are particularly useful when traditional
credit is tight or a company does not have sufficient cash-flow
stability to qualify for a traditional loan. An asset-based loan is also
an option for companies that have large amounts of working capital, are
seeking expansion, or need to restructure.
alternative lending options often do not have the luxury of time to wait
for approval of a traditional loan. Turnaround time for securing an
asset-based loan can be quite short. Asset-based loans can be used to
help smooth out the unpredictability that operating firms face as they
navigate through changing business climates. They can help to stabilize
liquidity, enabling a company to operate more efficiently. Funds and
nontraditional banks lend at a higher percentage of accounts receivable
and inventory than traditional banks do. Asset-based loans also allow
companies to maintain ownership of their assets. Factoring:
involves the sale of an asset, such as accounts receivable or purchase
orders, to an outside firm to help a company manage its collections and
finances. Factoring creates an environment in which a lender becomes
intimately involved with a company because the factor becomes the owner
of the asset. Therefore, the factor is vested in the success of the
firm, although a factoring arrangement is usually short-term.
is an option for companies that are growing rapidly, such as a
start-up, but need assistance with managing their receivables and
invoices. It is also an option for a company that cannot obtain
traditional or alternative lending, but has either substantial working
capital to collateralize or purchase orders that are enticing to
factors. Purchase Order Financing:
financing is a short-term financing method that allows companies to
collateralize their invoice orders to obtain financing.
order financing can be a funding source for companies that have
purchase orders representing large amounts of future revenue on their
books, but low levels of cash flow or collateral assets. The financing
arrangement allows a company to purchase raw materials to continue
developing goods that buyers have previously ordered. Financiers are
willing to lend on purchase orders because buyers have set a demand
precedent for the product. Purchase order financing is an option for
companies that are undergoing rapid growth, such as start-ups or
companies executing aggressive growth strategies.
advantages of purchase order financing are that qualifying is relatively
simple and that it can be implemented quickly. The main disadvantage is
that it is more costly than traditional lending.SBA Loans:
Small Business Administration (SBA) loans are orchestrated to help
small businesses meet their capital funding needs when they are having
problems securing traditional loans. Designed to spur small-business
activity and therefore increase overall economic activity, SBA loans
help small businesses secure financing through a variety of lending
sources by guaranteeing repayment of up to 75 percent of the amount of
The SBA connects companies with third-party lenders
that are geared to meeting specific lending needs of small businesses.
Typically, SBA loans are available for up to $5 million but in some
cases may be as high as $10 million.
Because of the repayment
guarantee, underwriting due diligence is not as stringent for SBA loan
approval as it is for traditional loans. One drawback to an SBA loan is
the upfront cost. Borrowers must pay from 2.5 to 3.5 percent of the loan
amount upon initiation.Mezzanine Financing:
financing is a capital raise that involves a mix of both debt and
equity. Namely, it is debt capital with equity warrants attached.
Mezzanine financing is a subordinated form of capital, junior to the
senior loans of banks and venture capitalists. It is a viable
alternative for companies looking to expand via acquisitions, initial
public offerings (IPOs), or organic growth. The advantage of mezzanine
financing is that it can be obtained quickly because little or no
collateral is required to secure the loan. It also acts as an equity
component on the balance sheet and may ultimately help a firm secure a
traditional loan. The main disadvantage is cost. Lenders who issue
mezzanine financing typically seek returns in the 20 to 30 percent
range.Hard Money Lenders:
Hard money lenders are
often referred to as lenders of last resort. A hard money loan is
secured by the value of a companyâ€™s property, not by its collateral.
These loans are sometimes used for distressed debt and turnaround
situations, normally by companies that have a great deal of equity on
their balance sheets. The loans are usually short-term. Under no
circumstances will traditional lenders issue loans under these terms.
advantage is that a company finds a lender that is willing to issue a
loan. The disadvantage is the cost of the loan and the risk inherent
with a loan of this nature.