The banks have recently increased their lending practices, but they’ve definitely learned from the market crisis of 2008–most notably, their need for higher amounts of capital to weather the ups and downs of the economy. Overall, this is a positive trend, but the question remains as to whether or not your bank is willing to lend the necessary funds to cover your cash flow needs.
The problem for most companies that have experienced cash flow issues over the past few years is that banks tend to lend on historical information, so if you’ve had a rocky two years in terms of payments, it will definitely come into play regarding your increased credit line needs, even if you’re demonstrating a high rate of growth.
We recently visited with a prospect with this exact issue–a concrete company that subjected to the downturn in the residential and commercial markets. The bank that they are currently with is willing to lend them more money, since they’re back in growth mode, but it’s not enough to meet their demands for receivables (in fact, it was less than half of what they need.)
So what do you do if you’re in this situation?
Outside of the banks, companies like ours will lend based on future receivables as opposed to historical. That means that if you’ve got great projections, solid leadership, and a clear path for growth, we can either fund receivables one-to-one, or we can do a revolving credit line–the difference is that we’re involved more heavily with the entrepreneur. We can do this because we work closely with the company, and are more hands on with the Accounts Receivables.
But enough of the sales pitch–the point is that there are options for lending out there in addition to banks that you may not have thought of, and if you’re faced with this situation, I highly encourage you to investigate some alternative lending solutions.