"Stop wasting time whining that your bank won't lend you money," says Graeme Howard, an investment banker in Rock Hall, Maryland. "Take a walk through your balance sheet to figure out precisely where there is room for creative financing." Here, Howard offers a few suggestions.
1. Ride that float. You can successfully keep a negative balance in your checkbook, Howard says--and, by doing so, gain access to more money than you really have. The key is staying one step ahead of your bank's payment of the checks you write. "There's simply no reason to keep extra money in a bank," contends Howard.
2. Set up a bonded warehouse. If you need capital for inventory, Howard recommends setting up what is known as a bonded warehouse on your property. "The inventory is maintained on your property but continues to be owned by the vendor, and you are not invoiced for it until it leaves the warehouse," he says.
3. Tap friends for unfinanced receivables. Selling receivables to a third-party factor is old hat for many. Typically, a secured lender will advance 50 percent to 80 percent of your receivables. Then, says Howard, tap friends for an advance on the remaining 20 percent to 50 percent. "You will get a yes fairly often," Howard says, "because you're not simply holding out your hand for a loan, and the risk is fairly low."
4. Go to a venture leasing company. The difference between these companies and traditional equipment lessors, says Howard, is venture leasing companies will "take a risk on a semicreditworthy company in exchange for higher rates and some form of equity participation in your business." If you need office equipment, they're out there looking for deals.
5. Move in with a friend. If you need office or factory space, "move into someone else's," says Howard. "It's foolish to add to your own [facility] when there are so many companies out there with excess capacity."
6. Finance prepaid expenses. "Business insurance usually is paid in advance for the full year," says Howard. Ask your agent for the name of a company that finances insurance premiums. One of two favorable results will occur, according to Howard: "They'll either give you the name of a company or finance it themselves by changing their billing plan."
7. Sell rights. If you have a proprietary technology, process or product, Howard recommends selling the rights in other parts of the world. "If you're never going to sell your product or service in Argentina," he says, "you might as well sell those rights to someone who will pay you cash for them."
8. Ask for extensions. Moving over to the right-hand side of the balance sheet, where the liabilities are, Howard suggests asking creditors for extensions. "Some people will say no," he says, "but others will say yes."
9. Sell equity. Heading south on the balance sheet into the shareholder equity section raises the specter of selling a part of your company. An enterprise's potential is worth something, and this value can be sold to investors who want to cash in on your future growth.
10. Analyze yourself. Get a pencil, pad and an Annual Statement Study from Robert Morris Associates, a commercial lender in Philadelphia that provides information on how to compare your company with others in your industry. "This will either give you solid evidence that you are a good credit risk and deserve a loan," says Howard, "or tell you in a New York minute why you need to apply yourself to steps one through nine."