Just about every new company has been there: you need funds, but the bank says no to a loan. What are some alternative ways to raise money?
Rachel Hersh, Northeast region sales director of Prestige Capital, says there are several good options. In the lending business for two decades, Hersh says there are three common scenarios in which startups can get much-needed capital even when banks won’t make loans.
Your company is too young to get a loan
Your startup is scaling, and you need money to hire more people. You haven’t been in business long enough to get a loan from the bank, but you do have a large volume of accounts receivables. A bank can refer you to a company like Prestige Capital to seek alternative loans.
“I work closely with Silicon Valley Bank,” says Hersh, a WeWork Bryant Park member. “They refer deals to me when people don’t qualify for a bank loan because their companies are young. I also work with their investors to give them operating capital.”
Hersh says she was recently introduced to a content marketing company that needed funds to hire more people. She advised the company to consider accounts receivable financing—basically, it’s when you get cash by selling your invoices. Your company’s line of credit is based on sales instead of net worth.
“I can take a company and grow them however much they want to grow,” Hersh says. “We grow with our clients in a way the bank could never keep pace, and we will deal in the media space, the ad tech space, and we do some deals in tech, software, and services.”
Keith Smith, co-founder of Payability, a provider of fast capital for businesses in mobile, media, and e-commerce, says he steps in when a bank is hesitant to increase the line of credit for a young company.
“Say a company is growing rapidly right after it first launches, and it gets a bank loan,” says the WeWork SoHo member. “But the company gets only $100,000 line of credit, and it needs more. The bank will say it will think about increasing the company’s line of credit, so ‘let’s wait a few more months.’ That doesn’t work for a company trying to grow that needs the money now.”
You need money to ship or order more parts for your product
Here’s the scenario: you’ve got a great product that’s ready to hit the shelves. You’ve got distribution deals with large retailers, but the cost of shipping is quickly adding up. You’re nervous about fronting that much money because you don’t know when it’ll pay out.
“Say a health bar company sells its product to Whole Foods,” Hersh says. “So after the product ships to the customer, and my client sells to Whole Foods and generates an invoice, we buy that invoice and pay off the purchase order without taking equity.”
Let’s say it’s not just the shipping costs you need covered. You also need to generate more products, so you can send out more shipments. Who’s going to give you the money to build and order new parts for your products? If you’re a young company, it’s tough.
Companies like Prestige Capital can provide a credit line against receivables, so you have the money to rent out warehouse space, buy all the necessary equipment, and keep chugging along.
You need flexible financing
Say you’re a mobile app developer, a marketing company or a supplier using an online retailing platform. You can’t wait 60 days for a company Amazon to pay you if you plan to keep scaling your business.
Payability can provide cash to small businesses based on shipments delivered to Amazon’s supply warehouse.
“Our clock starts ticking the moment you ship to Amazon,” Smith says. “We simplify the collection process with Amazon, and you’re paid on weekly basis based on what you shipped to Amazon instead of waiting.”
It doesn’t matter if you have an immaculate credit score. It doesn’t even matter if you have no credit history. The beauty of alternative lending is that you keep capital flowing through your company through both good and lean times.