The standard option most business owners and managers have is that any amount of business financing they are going to require over time is going to come from their bank or some other banking institution.
After all, banks and institutional lenders will regularly tell you that they want your business and can take care of all your business needs.
But the stark reality is that the Major banks and secondary lending institutions, especially the ones that are the most visible in the market place, are only looking for “A” deals and are frankly more interested in your investment portfolio, insurance policies, and any other financial service they can offer that tend to be far more lucrative and much less risky than almost any type of business loan.
And truth be told, the majority of small and medium sized business (SME) financing does not come from banks. Depending on whose numbers you choose to believe, the actual annual lending extended to SME’s is about 1/3 of what’s actually required by the market place.
But because the economy continues to go around and around, the money has to be coming from somewhere. And many times, these sources can be very unconventional compared to the formalized lending practices of a bank.
The key to any lending or debt financing arrangement is that the borrower has something of value to the lender than creates a basis for a loan to be made.
When the circumstances of a given business do not fit into the lending criteria of the primary or even secondary market sources, its time to look to more unconventional options.
Once again, the key is to understand the value you have to leverage and who would be interested in providing capital against specific assets you control. This can be anything. Patents, specialized equipment, strategically located property, etc. The possibilities are limitless. But unless what you have has a value to someone else, there is no business financing equation to work from.
As an example trade credit is a major form of capital provided by manufacturers and suppliers to move inventory through their systems. And while most trade credit is based on the financial strength of the customer, there are many variations to trade financing that come into play based on the value or opportunity available to the company providing it.
In most of these and other unconventional business financing scenarios, there is a steep walk away price to the borrower for not repaying the debt as written. The incentive of the lender is the opportunity to acquire something they consider as valuable at a discount or even at market price if its something that is exclusive or hard to come by.
Asset based lending is pretty much grounded on the premise that in the event of loan default, the borrower will either retain the security or knows how to liquidate it to get his or her money back.
But in reality, there are many, many unconventional loans provided every day from some of the most unlikely of sources.
So when you’re pushing rope up hill and have been turned down for the umpteenth time from the usual suspects, its time to think outside of the box and develop a business financing strategy that someone will be interested instead of continuing to push one that everyone clearly isn’t.