We found a great article today written earlier this quarter in Manufacturing and Technology e-Journal, an online b2b journal.
The article, written by Kenneth Marks of High Rock Partners, lays out four financing alternatives for emerging manufacturing and other privately-held growth companies.
Given how conservative banks currently are, especially when considering lending to smaller companies with a smaller physical asset base, we thought this article was particularly topical. Take a look at Kenneth’s full article here.
The article details four primary sources of capital that CEOs running private companies should consider in the current climate:
- Asset Based Lenders (ABLs) – these are typically non-bank lenders that provide working capital to businesses based upon your accounts receivable, your inventory, or sometimes your purchase orders. Many ABLs got wiped out in 2008/2009 by making sloppy loans, so be prepared for scrutiny from those that are still actively lending.
- Growth Capital Investment Firms – as Ken explains, these firms are neither venture capital firms, nor are they leveraged buyout firms. They typically provide equity growth capital to businesses who have proven their customer market, proven their profitability, and proven that they have significant growth prospects, but do not have a business with sufficient free cash flow to fund their own growth. Historically, there have been several firms in this category, but the growth in the private equity industry has fueled new entrants and there are now many firms looking to conduct minority growth capital transactions.
- Mezzanine Lenders – We wrote a post on mezzanine lenders and mezzanine capital; visit our post to learn more on the subject. In addition, you can learn more about mezzanine capital here, here, and here.
- Key Partners, Strategic Vendors – while the first three are all viable options, creative approaches to your relationships with your vendors and your customers is the first place you should turn to improve your working capital. Can you lock in an agreement with a vendor if they give you a lower price or better payment terms? Conversely, can you convince customers to pay up front by providing them in return? Working capital management can take your company a long way without having to raise outside debt or equity capital. Don’t forget about this option.