Nontraditional Lending Sources Could Be Your Best Bet

by Mark Joyce

Mark Joyce is executive vice president and chief financial officer of AmeriQuest Business Services. He has held those positions since 2006. Joyce previously served as chief financial officer of NationaLease Purchasing Corporation.

Although banks are the traditional avenue taken when getting a loan, including equipment financing, there are other options in the market that could better serve your company. Mark Joyce of AmeriQuest Business Services offers some alternatives.

When you think about getting a loan, banks immediately come to mind. They are a traditional source of lending for many businesses and certainly the go-to source for equipment financing.

But banks aren’t the only resource for financing your business and, in fact, they may not always be the best choice.

You have options when it comes to borrowing money and here are a few examples of loans you might want to consider:

  • Asset-based lending: Loans are made on the basis of the value of assets you own. If you have $10 million of accounts receivable, you may be eligible for a loan of 80% of the value of those receivables. The amount available on the loan can change as your eligible receivables increase or decrease.
  • Factoring: Factoring is different from asset based lending in that a lender purchases your accounts receivables. In this scenario the lender might offer you $9.5 million for your $10 million of receivables and then keep buying your receivables at a 10 percent discount. The factoring company may purchase the receivable with-or-without recourse.
  • Merchant cash advances: With this type of financing, a company will provide funds to a business in exchange for a percentage of the business’ daily credit card income, which comes directly from the processor that clears and settles the credit card payment. The rate changes may be a fixed or variable percentage of a merchant’s future credit card sales.

While the structure of these sources of financing may be different from traditional bank financing, it is important to remember that these non-bank sources may have more flexibility and less restrictive covenants. However, there are often stringent reporting requirements associated with these types of capital needs.

In addition, the amount of the loan can go up or down. If it is an asset-based loan based on receivables, the amount can change as your receivables change.

It’s a good idea to consider all your options when looking for a loan. Start the process by thinking about what is best for your business. Everything can be structured in a unique way so what you think wouldn’t work for your situation may actually end up being a viable option.

Perhaps most important of all, make sure you engage a good advisor to work with you. Whether it is an attorney or a financial advisor, find someone who can help you navigate the complexities of financing.

Remember that every banker and every lender is trying to sell you their products for what they think is best for you. Someone who is intimately involved in your business and who understands all its nuances (as well as the nuances of the various lending options) can really help you work through the forest of information to lead you to the best solution.

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