In these more challenging times, it is important to assess whether your business has the financial resources to weather the storm and especially if the storm continues for longer than expected. Assess whether each of the sources of financing that is currently being used is likely to agree to an increase in your limit and if there is an increase possible make arrangements for it now. Remember that bankers (and many other sources) are very stingy with their umbrellas when the rain has started.
Many SME’s rely entirely on financing from the most common sources of financing, which are:
Bank line of credit; and
Extended terms from suppliers.
If you are not making maximum use of the extended terms from suppliers, you are missing an opportunity, as this is usually free financing and many suppliers will bend over backwards to accommodate a good customer, as a way of retaining your business. I am often amazed at how easily my clients obtain consent to another say 30 days in their terms, just by asking. Of course this works best if your account is within the existing terms when you ask for the extension.
When you are not eligible for bank financing or have used as much as your bank will extend, consider other sources of financing, such as:
Private equity (especially family & friends i.e. love money);
Loans from friends & family;
Loans or equity from strategic partners;
Mortgage over personal or business assets;
Asset based lending; etc.
Not all or even most of the above will apply to many businesses but some may.
There is a delicate balance to achieve by asking for financing when you do not need it, just to have it in reserve and waiting too long. This can be overcome by showing plans that show the lender or investor under what circumstances it may be required.
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