Anyone who has attempted a do-it-yourself home project knows that selecting the correct tools for the job is critical. While choosing a screwdriver over a hammer may be a simple decision for that weekend task, determining the best financing tools for your business can be daunting. Often the first challenge is simply being aware of the financial tools available.
There are a number of attractive financing options accessible to small and midsize businesses besides traditional loans. Many offer favorable interest rates and convenient and customizable terms. The key to finding the best solution to your needs is to work with a partner that not only provides a wide variety of financing options, but consults with you to understand the nuances of your business. Here are some nontraditional options that might be a good fit for the unique circumstances of your business.
Sponsor Financing
A common alternative to equity financing, Sponsor Financing is a type of leveraged financing used to monetize the perceived value of an organization or other intangibles. Frequently used to finance business recapitalization and expansion, Sponsor Finance loans are also often used for acquiring closely-held businesses where the owner is looking to exit the business or realize partial liquidity for retirement.
Sponsor Finance loans serve to support business growth and increase returns to investors by financing business operations that generate incremental profits.
Asset-Based Lending
The opposite of Sponsor Financing, asset-based loans use accounts receivable and inventory as collateral and are often set up as a revolving line of credit. Funds from asset-based loans are frequently used for working capital, debt refinancing, acquisitions or simply an infusion of cash to get over a financial hurdle.
These loans are well-suited for manufacturers, distributors and service companies that have seasonal revenues or tight cash flows, or are growing rapidly. Asset-based loans are also often utilized by new businesses that don’t have the track record to qualify for a more traditional loan. This form of financing can help stabilize operations by providing improved liquidity, financial stability and predictable cash flow.
New Markets Tax Credit Program Loans
The New Markets Tax Credit (NMTC) Program is a federal lending program available for companies pursuing projects that are located in certain low-income communities. The goal of the program is to stimulate business and real estate investments that result in jobs and other benefits to people living in these neighborhoods.
NMTC loans can provide a source of low-cost, long-term financing or refinancing for a company’s working capital, equipment, real estate or other project located in areas designated by the U.S. government. To qualify for a NMTC loan, the project or business must be in a Qualified Census Tract.
NMTC loans have many advantages, including below-market interest rates, lower origination fees, longer period of interest-only payments, higher loan-to-value ratios and often longer payback periods. Enterprise Bank & Trust is one of the few lenders that has deep expertise in helping companies navigate and close both federal and state NMTC loans.
Small Business Administration Loans
The U.S. Small Business Administration (SBA) offers a number of loan programs for business expansion or operations. SBA loans have many benefits including favorable interest rates, flexible terms and lower down payment and collateral requirements than traditional commercial loans. Enterprise can consult with you on which of the following SBA programs might be a fit for your business financing needs.
- SBA 7(a) Loans SBA’s basic loan program providing funds for business acquisitions, partner buyouts, real estate and working capital.
- SBA 504 Loans Fully collateralized loans for real estate or equipment for use by companies that don’t qualify for traditional financing.
- Express Program Offers loans up to $350,000 including term loans and lines of credit; often used to refinance debt, obtain working capital or buy real estate.
- Export Express Program SBA’s simplest export loan product offering streamlined financing up to $500,000.
- CAPLines Program Offers loans up to $5 million to help businesses meet cyclical and short-term working capital needs.
While SBA loan products are the same, all lenders are not. Enterprise has Preferred Lender status with the SBA, meaning your SBA loan decision times are likely to be substantially reduced.
Other Creative Financing Options
Enterprise can assist with other innovative financing solutions. Included in these are loan funds which are short-term notes with terms that can be tailored to meet the unique needs of a business. Loan funds are often available with rates that are a fraction of what the market would charge.
Other creative financing options include SWAPS and factoring. SWAPS are highly customizable and are commonly third-party interest rate contracts that provide a longer term fixed rate than most lending institutions typically offer.
Small and midsize businesses often have financing needs that don’t fit neatly into traditional loan products. Fortunately, there are many creative and nontraditional financing options of which business owners may take advantage. When it’s time to fund your next business or real estate project, contact our specialized team of experts. We will help ensure you know all your options and assist you in finding the best financing solutions for your organization.
