For many business owners, the majority of original loans and funding will traditionally come from a bank (usually after initial funding from friends and family). As the years go on, the working capital line continues to grow with the business. But in some cases, due to a lack of hard assets or limitations at the bank due to their size, the banker needs to put a cap on the borrowing limits. So now what?
Great news: you have options. Check out the list below to learn more about different actions you can take to ensure you (and your company) receive the necessary guidance and assistance during this crucial point in time.
One solution is to use a different bank. If you are with a community bank, a regional bank may have different lending capacity/limits, guidelines and/or restrictions that better fit your needs. Additionally, your business might be in a space that the new bank considers a niche – meaning you may qualify for a higher lending limit/tolerance. These types of business or commercial bankers are readily available in the market and are willing to try and “bank” your business.
Money Center Banks
Large national or money center banks also often have different guidelines and limits, and may be able to meet your changing needs. However, the challenge with this option is that you must have the time to call all of them individually, essentially “working the switchboards” until you find the correct person to help you.
Private Equity Firms
Most decent size companies have been contacted by at least one or more private equity firms. While PE firms have money available, the downside is that you, the owner, will have to give up ownership – and at least some control – to receive funding. However, most owners are reluctant to give up control or significant ownership of their company, making this option relatively unfavorable.
While the word “investment” is in the title, investment bankers don’t actually invest in businesses. They first review the goals of the firm, examine the company ownership structure and assess the money raise/capital needs. Next a financial review is completed to better understand your business, financial needs and your future use of proceeds. The investment banker then acts as your agent and “markets” your needs to debt funds, money center banks and private equity firms. Because the investment banker spends all day interacting with these types of firms on multiple deals and opportunities, they already have existing contacts with the funder firms, which saves owners time, prevents possible missteps, and expands future options for the company. These options can allow for dividends/liquidity, growth capex, collateral-light fundings, removal of personal guaranties and limited amortization structures, to name a few. The key here is that the investment banker will contact as many of the right types of firms as needed in order to secure the best possible terms to meet you and your company’s needs.
No matter which route you chose to take, one thing is for sure: there are companies and individuals readily available to help you ensure your company’s continued success. How those goals are reached, however, is up to you.
Author: Mike Anderson
About Bridgepoint Merchant Banking
Bridgepoint Merchant Banking is a middle market investment banking and private equity firm that serves clients over their corporate life cycles by providing merger and acquisition and corporate finance advisory services. Bridgepoint Merchant Banking is a division of Bridgepoint Holdings, LLC. In order to offer securities-related Investment Banking Services discussed herein, to include M&A and institutional capital raising, certain Managing Principals of Bridgepoint are registered representatives of M&A Securities Group, Inc., an unaffiliated broker-dealer and member FINRA/SIPC.