A bank line of credit: Why you need one
While fees and interest tend to make ABL slightly more expensive than traditional bank financing, it can often provide the business with access to more capital, which can be a good trade-off.
Much-Needed Cash Infusion
In the right circumstances, options like these can provide much-needed cash for businesses that can’t qualify for an adequate bank credit line. Other benefits of alternative financing include:
- It’s easy to determine the exact cost and obtain an increase.
- Professional collateral management is included.
- Real-time, online interactive reporting is utilized.
- It may provide the business with access to more capital.
- It’s flexible—financing ebbs and flows with a business’ needs.
Many banks today are working in partnership with alternative lenders because everyone wins: The business receives the financing it needs to grow and prosper, while the bank has a chance to retain the non-credit relationship and develop a future one.
Alternative financing is usually considered to be a transitory, not a permanent, source of financing (though some businesses choose to remain with alternative financing for the long term). Therefore, you should have an exit plan in mind for when to transition from alternative financing to a bank line of credit or loan. This also makes it important to maintain and nurture your relationship with your bank while in this transitory financing phase.
Your banker may be able to refer you to an alternative lender that can provide the right type of alternative financing for your situation. If so, be sure you understand the options available to you, and the pros and cons they offer your business. Then concentrate on using the funds to increase your business’ sales and profitability.
Tom Klausen is the President of First Vancouver Financial Services, Ltd., and a consultant in the small business field. He works with small business owners, lenders, consultants and accountants throughout the U.S. and Canada. For more information, TKlausen@fvf.ca or (604) 988-1490 (in Canada) or (206) 947-0912 (in the U.S.) or visit http://www.fvf.ca.
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