Monday, February 25, 2008

Tight Cash Flow? Try Asset Based Lenders

This week's edition of the Los Angeles Business Journal (may require subscription) wrote about how the credit crunch is creating new opportunities for alternative lenders in the middle market.

For businesses with less cash flow, but good collateral and a strong story, alternative lenders such as St. Cloud Capital, Allied Capital Corporation and Ares Capital are able to provide a variety of capital solutions including senior debt, subordinated debt or equity.

While these and similar funding sources could be more flexible than a bank, they will also require a much higher interest rate than the bank for taking on more risk. In some cases, the alternative lenders may be more than happy to own the business of the borrower in the event of a default.

The key with any lender is to know what deal size, industries and risk profile the lenders may be seeking. Many of these lenders are not dealing with small businesses - too much aggravation and not enough return on their money.

There are a number of asset based lenders who can provide alternative solutions to small businesses when the banks cannot accommodate their borrowing needs. These lenders will not focus solely on cash flow, but will look to the borrower's assets - accounts receivable, inventory, equipment and real estate - to create a funding solution to meet the small business borrower's objectives. Like the alternative lenders focused on the middle market, the rates will be higher than the bank and you need to know what type of deal each lender is seeking.

So if the bank tells you "no", there may be other sources of money available - credit crunch notwithstanding. It will cost you more, but your business may live to see a better day.

Need help finding the right asset based lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : credit crunch , Los Angeles Business Journal , asset based lenders

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