Challenge: traditional bank lenders usually do not like finance companies during periods of variable cash flow or guarantees can not be predicted - for example, business growth periods is very high, or on the other side, decreased operating performance
solution: non-bank (alternative) specialized lenders in lending the basis of origin or those that offer a short-term bridge loans on can look often behind the unrest for a transitional period to fill the financing needs of the company until the work is able to return to traditional lending relationship.
borrowers key considerations:
Cash is King: focus on the availability of cash and debt service of alternative loan, not the interest rate
Do the rewards outweigh the cost of capital: If the benefit of taking on new business is greater than the cost of capital, and that interest rates can be high deserve it
exit plan-mail: a clear plan at the outset that the transfer back to the Bank of alternative source of capital
bank lenders do not like to lend money to companies when the cash flow and / or guarantees in a state of flux, for example:
Example A : A business goes through a boom in heavy growth causing either the accumulation of large stocks, which further requires working capital financing, or create a period with the future cash flows of the mysterious and possibly inadequate warranty coverage depending on the conversion cycle criticism. Or
Example B : A business faces a tough run-in period because, for example, re-operational restructuring, and reorganization of the sales force or miscalculating the scope of the accomplishment of major projects creating or profits negative cash flows
In such circumstances like these, the lender may reduce the funds available (for example, increasing the reserve in the borrowing base or the deduction of specific guarantees), and request additional collateral or simply ask the company to find another bank. .
non-bank lenders are often willing to look beyond the turmoil of the transition period to understand the structure of the real risks in order to get a break to provide the capital needed
[andregulatealternative lenders to lend to periods of uncertainty - they usually have greater flexibility to adapt their loans to:
Provide additional capital growth during periods of rapid expansion, not punish business investment traditional lenders may
Business financing in the early stages of the transition showed much earlier than when the traditional lender to lend
alternative lenders also offer more flexible terms (cash debt service, depreciation, loan maturities and covenants) and the availability of cash from the traditional banks, so they charge higher interest rates.
key considerations when borrowing from the lender's non-banking (alternative):
companies turn to the non-bank or alternative lenders when traditional lenders do not provide head money or the bank where required is extremely narrow. Here are several key considerations when evaluating alternative loan:
Money Matters focuses most so on the required cash debt service (principal and interest), not interest rate on the loan
In many cases, the total debt service for a replacement loan at an interest rate higher will be less than the total service traditional bank loan debt principal payments due to the much lower
If interest of taking on new business in excess of the cost of borrowing, high interest rates may be worth every penny
Do you have a realistic plan to move back to a traditional lender before you take on bridge loan
Make sure the loan provides cash reserves if the transition longer or cost more than that, it is expected
Ask yourself - is not a lender to understand my company and appreciate me as a client? You must always be yes. If not, find a lender that does
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