There are numerous other options available and with a little research, business owners can unlock a realm of new possibilities.
March 1, 2013
s an investment banker I am exposed to all kinds of difficult situations that business owners can face. Sometimes a client’s need for financing is driven by an unexpected business or sector slowdown, other times it is for acquisition or growth purposes. But more often than you might think a need for capital will arise as a result of a breakdown of existing credit facilities through no real fault of the borrower.
I spoke to one of my colleagues in the Financing arena and sought his advice. Barry O’Neill, the Managing Partner at Zed Financial Partners. He had this advice: “Some of the most disheartening circumstances we’ve seen have involved management becoming” blindsided by their traditional financial partners. A business owner can have a long-standing relationship (along with shining credit rating and excellent margins) with a traditional lender and still find their loan called, or “no-brainer” requests for further capital declined.
“Changing market conditions, concerns around exposure to industry sectors and risk management strategies can change a traditional lender’s interest in a client and the effects can be devastating.” Fortunately, there are steps that business owners can take to go on the “offensive” and secure the liquidity they need to grow outside of traditional financing sources. Business owners and managers must learn to become as creative and versed in options for financing their businesses as they are in other facets of operations.
Sometimes it is a matter of looking for another financial institution that better understands the business. Other times, it requires re-examining the assets of a company from a different perspective. Alternative or non-traditional financing options can help to facilitate and allow for the execution of business plans.
Often access to the appropriate financing may solve liquidity problems or even present hidden and creative opportunities for freeing up cash flow. Several unique structures may be employed in order to ensure a successful transaction and to maximize the availability of funds. Knowing where to find the different types of financing is crucial.
O’Neill suggested a few options:
The U.S. Option:
An increasingly viable option for Canadian businesses is U.S. private equity and private debt lenders. In Canada there are a limited number of such sources of capital available, but in the U.S., there are hundreds of different institutions that are actively seeking opportunities in Canada.
Regardless of whether the source of capital is domestic or foreign, the key to securing capital is presenting value where others do not and then translating that value into a workable solution for a lender. There are many ways to put financing together. It’s a matter of being creative and knowing where the money is.
Cash Flow Management:
In many cases, there is significant capital being tied up in working capital. Various operational specialists can help to assess cash flow restrictions and assist companies to unlock liquidity by putting in proper controls and systems.
Securing Of Future Cash Flow Streams:
Cash flow streams that are associated with long-term contracts and a high degree of certainty may be sold to a third party.
Off-balance sheet structures may generate additional liquidity. For example, intellectual property may be sold into a separate company, which reverts back to the “parent” company after a period of time.
“Accessing capital can be expensive, time consuming and incredibly frustrating, but it doesn’t have to be and there are a number of other options outside traditional financing sources,” says O’Neill. “One of the most important advantages in maximizing a company’s access to capital is finding the most beneficial source of capital from the most ideal financial partner.”
In many cases for Canadian businesses, banks and traditional sources of funding are the ideal financial partners. The convenience and the efficiency of the commercial branch suit most situations effectively and commercial bankers work hard to service their clients. However, for businesses in periods of transition, whether caused by distress, explosive growth or the potential for a change in ownership, the traditional lenders can be impediments and obstacles. There are numerous other options available to Canadian businesses and with a little research, business owners and managers can unlock a realm of new possibilities that suit their situation and best serve their needs.
There are countless ways to improve business liquidity and it makes sense to review options regularly, before additional liquidity is necessary. With the wide avail of creative alternative options for financing one’s business, sometimes a “no” from your traditional lender might actually do you a great favour resulting in a better financial partner.
Companies seeking U.S. funding should work with financiers who understand the industry sector and business, so they can work with the company as it changes and grows. CNS
Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile specializes in the sale of privately-owned business. He can be contacted at firstname.lastname@example.org or (416) 368-8466 ext. 232.