Our 40 years in the working capital business has taught us many things, the most significant being, it isn’t the cost of the capital as much as it is access to capital that is the key to success. Without working capital, young and growing companies stagnate or die. A common scenario many of our small business prospects face, and we suspect many of your clients encounter as well, is how to finance growth on a nominal equity base. Many of these companies incorrectly believe they can obtain small business loans through their bank. When they realize they cannot, they become frustrated with their banker and turn to their advisors, like you.
The basic math aside, we also believe the current regulatory environment confronting the banks will only continue to limit access to working capital for small companies. This is coupled with the fact that most community and small regional banks prefer to lend on “hard assets” (real estate or equipment), and simply aren’t equipped to understand, manage, and monitor working capital lines of credits secured by accounts receivable financing and inventory. Add to this a rapid growth scenario, a previous tax issue, personal bankruptcy, or account concentrations, and the banks become even more nervous.
We are also convinced there is much confusion about the alternative financing space among small businesses. Many make the incorrect comparison of believing we are an alternative to bank financing. We are not. If a company is “bankable,” we encourage them to find a bank and will direct those who are bankable to an appropriate bank. If they’ve been deemed “unbankable” and are looking for working capital solutions, we invite them to contact us.