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What are best alternative options of substantial funding for a SMB, other than the traditional bank debt?


Topic Expert
Tom Pai
Title: CFO consultant
Company: Sunstone Group
(CFO consultant, Sunstone Group) |

There are numerous non-bank lenders that cater to SMB market. Top of the list are:
- A/R lenders. (aka Factors) Can be expensive, okay for short term needs.

- Leasing Company. Tread carefully and understand the terms. Lots of potential hidden costs. Great for CapEx-heavy companies. Don't overlook Leasing for software purchases and implementations.

Also, there are many niche non-bank lenders that focus on specific vertical niches. These folks understand the nuances of the particular business segment, and can structure deals to better match your situation. Challenge is that they can be hard to find. Keep asking around,

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

Tom has some good guidance for you. The ultimate answer to your question really depends on how much you need - I just don't know what "substantial" is. Here are some other alternatives that you may consider:
1) There are many state, county and city loan funds that provide long-term financing for businesses that are growing and are located within their boundaries - they are going to focus on your employment growth plans because their funds have motivate employment/tax revenue growth.
2) If your annual revenues are greater than $3MM, there are several revenue lending firms popping up - they will make a loan that is repaid as you generate new revenue - the payment (including interest) is a set percentage of your future sales for a specified period.
3. If your customers pay by credit card, there are several Merchant Credit Advance businesses that will loan you money and will receive their repayment and fees from the proceeds of future credit card sales. These usually operate as "advance" providers rather than lenders and as a result, the effective interest rate may be excessive - be careful.

There are more but it is most important that you: a) only deal with reputable firms who you can get a reference on (preferably from someone you know); b) are careful and pay attention to all of the terms of the loan and that you understand them; c) clearly understand how the loan proceeds and repayment thereof will affect your growth plans & cash flows.

Be sure to get solid advice if there is anything that you aren't sure about.

Good luck!

Greg Smitherman
Title: Founder
Company: The Remarkable Group
(Founder, The Remarkable Group) |

The other obvious answer is equity financing, from a friends and family round (if you have wealthy friends or family), to venture capital, to private equity. The difference between the last two really depends upon your revenue and profitability level. If you are not profitable, a mid to later stage VC firm is your best bet. If you want to go the private equity route you really need to be EDITDA positive.

Neither of these paths is easy nor without their own issues (I've worked at both), but if you are looking to raise a "substantial"(read $5MM - $100MM+) amount of cash they can be a viable alternative especially when banks are not willing to lend you the money. If you are looking to raise less than $5MM there are some smaller VC's and even a few boutique PE firms that will look at the deal, but the cost in equity may not be worth what you are trying to accomplish.


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