The Many Opportunities for Alternative Funding

When you are running your business, the last thing you want to happen is for a bank to deny your loan. You needed the funding to move forward and now that avenue is closed to you. What do you do? Are there any other options for you? Or, is this a sign to throw in the towel?

We sat down with Bennett Brown, the financing manager of Thunderbird Corporate Finance, to get a better idea of what options remain when the bank denies your loan. Brown describes himself as an “independent financing intermediary” -- he’s your guy when it comes to seeking out financing opportunities. He has over 30 years of experience in financing and knows his way around all aspects of the business. He outlined six different avenues of funding, should a bank not work.

The first option for funding he talks about is through Accounts Receivable Financing. This is a financing solution that is available, most often, for business to business transactions. Depending on the different contracts, it can take 30-90 days for your customer to pay you. If you need that money before that timeline is up, Accounts Receivable is a good option for you. This financing is focused on who the customer is and their history of payment. The more trustworthy, the better the advance rate you get. The lender will lend you the money and then, when you are paid by the customer, it will be credited directly against what you borrowed.

Accounts Receivable is useful when you have many different invoices that you’d like to receive payment for. But, if there’s only one particular invoice that you need the money for immediately, then you might consider Factoring Financing. This works the exact same as Accounts Receivable, but it will only apply to a singular invoice.
While Accounts Receivable and Factoring financing are most popular, these types of funding require an invoice to be processed. If you don’t have an invoice yet because you only have the purchase order, but you need the money to gather raw materials and manufacture your product, then Purchase Order Financing may be right for you. This allows you to take the purchase order to a lender and they will lend you the money required to fulfill the purchase order. Typically, Purchase Order Financing is an opportunity that will tide you over until the order is fulfilled, and then you can be eligible for Accounts Receivable financing.

Sometimes you need financing for equipment, specifically. Most banks can provide Equipment Financing, but if they are not as familiar with your company or your equipment, they may hesitate. The major benefit for financing your equipment is that, if a company can’t afford their equipment, this is a long-term option to eventually purchase the equipment, while also not needing to spend too much money. This avenue of financing is focused solely on equipment, so if your company is looking to expand and needs equipment, this may be the choice for you.

Recently, we’ve seen an uptick in recurring revenue companies. These are companies that have a monthly recurring revenue, often through subscriptions: think of softwares, apps, and subscription boxes. These companies will receive a smaller amount of money from their customers on a monthly basis, rather than a more conventional and larger purchase. While Recurring Revenue Financing can be more expensive than a loan from a bank, you must consider that banks don’t often lend to people with new start-ups or new apps. Banks like to focus on historical cash flow, but Recurring Revenue Financing will be projection based. If you can show the anticipated growth in your company, but just need the funds to push your company further, this would be a good option.

Lastly, there is Fintech Financing. This form of financing allows lenders to lend against cash flow or assets, but it’s through the internet. Because the financing is based on cash flow, this can be much more expensive than other options of financing. Fintech is often a short-term solution that does not help with long-term needs, so be aware of its short-term nature when you investigate various opportunities for funding. If you need funding immediately while you get your accounts in order for more long-term options, Fintech could be the solution.

While there are many different avenues to receive funding, should a bank deny your loan, it’s crucial that you understand what makes these options different. Some may be more desirable than others, depending on you and your company’s individual needs. Knowing and understanding the differences in alternative funding will only help you better secure the funding you need to move forward.

If you'd like to hear a more in-depth conversation about these different funding opportunities, please check out our podcast, Funding Quest, which can be found wherever you listen to podcasts.  Bennett Brown can be found through his website, Thunderbirdcorpfin.com.