Sorry guys

With the goings on in the markets this past week I have been too busy to draft a quality article. Instead I am going to point you to an article that I think a lot of business people should be reading. http://freekvermeulen.blogspot.com/2008/10/reverse-causality-sorry-but-lifes-not.html Enjoy, and I will see you again next week. 

Where oh where has the credit gone?

So now that the credit markets have pretty much seized up where is a credit worthy company supposed to turn for financing? In this article I am going to explore some less common options that may be attractive in this current market.

 

The first option, small local banks, is probably the easiest and most pain free way to get some cash. Many of these banks did not participate in the credit default swap market or the purchase of CDOs so they are fairly well insulated from the credit risk associated with the mortgage mess. They still need to make money and they do that by making loans. So while the funding for risky firms has dried up, moderately credit worthy firms should be able to still get a loan. The only thing (and it’s a big one) that prevents them from lending a lot is that interbank lending has taken a huge hit because no one knows who owns what. However, even with the interbank lending stopping, the small local banks should still be able to give you a fairly decent sized loan at a reasonable rate.

 

The second option, if the small bank doesn’t workout, is to consult with a commercial loan broker. A commercial loan broker basically acts as an intermediary between a firm and a lender. The loan brokers usually work with a strong network of lenders who are maybe more aggressive in their lending practices. The broker is familiar with what a lender requires in terms of assets, revenue, profits and ratios to make a loan and can move your paperwork to the appropriate lender quickly. If the broker has trouble getting you financing, lenders are typically more willing to honestly discuss the reason why with the broker, which will allow you to fix the problem and acquire some capital.

 

Sometimes commercial loan brokers don’t work out and when they don’t small firms have one more place to turn, private equity. There are two types of PE firms small business can go to for funding. One type is known as an "Angel investor." This is a firm that specializes in early stage financing but because there is typically a huge demand for this and such a small supply it is often very difficult to obtain. If, however,  you can get in good with an angel investor you will soon realize why they got their name. The second type is called a venture capital fund. This is money that has been pooled together from institutional investors that is invested on their behalf. VCFs typically provide "pre-flotation financing." This means that they will provide you with enough capital to get you to an IPO. Their big payout comes from selling the company on a public exchange so that is what they will strive for. It has been said that the only way they increase the value of a firm is by replacing the CEO so be very careful if you chose this route as it could come back to haunt you.

 

While your financing options may be limited it is not impossible to raise capital. It wont be easy but we don’t get paid to do easy work.