According to Boston Consulting Group (BCG), by the end of Q2 2020, over 60 percent of US businesses were either under financial or operational stress and 14 percent were in distress. This latter number represented a 43 percent increase in distressed businesses since 2019.
Those BCG numbers came at a time when federal relief was still pouring in. The Paycheck Protection Program has ended after shelling out nearly $800 billion to more than 10 million borrowers.
If your business is in distress, you must make every effort to find new sources of financing. To survive, you must act with urgency. When creditors start pressing you, you have no time to waste. But there is also no reason to panic. You can still take solace that bankruptcy remains the last option and not the first. There are plenty of non-government ways to finance survival.
Forms of Alternative Finance
Numerous forms of alternative finance exist for struggling businesses. The first step is to research which types will work best for you. If you start with an objective assessment of the true state of your company, you can identify the options available to you.
Asset-based lending: For a business that’s truly in distress, its greatest assets may be the only capital of any worth. Asset-based lending is a common method of survival for struggling owners. This type of loan is secured by your business assets such as inventory, property, vehicles, machinery, equipment, or accounts receivable. Instead of underwriting the loan by putting your business’ projected earnings under a microscope, the lender bases the loan on assets you have right now. So even if your business has weak cash flow or poor credit, this will not necessarily be a deal-breaker. The form of that loan can vary. The borrowing can be bilateral, with one lender and one borrower. Or it can be syndicated, with one borrower but multiple lenders. Which works best for your business will depend on the specific realities of your company.
A commercial real estate loan is another financing method that can work in many different scenarios even if a business has poor cash flow. If you are in the real estate business, such loans can be a very good fit. These loans are also a good way to finance renovations or refinancing. For real estate loans, there are several types. Conduit loans may be used to support commercial real estate for offices, warehouses, and hotels, shopping malls, and multi-family housing.
Some kinds of tax credits, both state and federal, are transferable. Historic preservation tax credits are among those that can be transferred and sold. A firm may sell some types of credits to another business, which then puts them to use to cut its taxes. The seller of the tax credit receives somewhat less than face value, but having cash on hand in the present may be worthwhile.
Another method to find capital is to sell bonds. Companies can issue bonds in the way that municipalities often do to fund expensive projects. Buyers are attracted to the higher returns and hope that the company will succeed. There is a robust market for distressed debt. This may not be your best choice, but it is worth looking into.
Government Funding
While government funding is less available than it was in the crisis period of 2020, it remains an option, especially through the Small Business Administration. It is still making SBA 7(a) and 504 loans. The agency gives grants to businesses that are doing scientific research. There are also grants to community organizations. You also might consider trying to fund your company with capital from some of the many quasi-governmental lending agencies. Not every business can take advantage of these kinds of financing options, but they can be worthwhile to research as you hunt for the capital you need.
An Experienced Advisor
You have multiple paths back to stable financial footing, but finding them and building a financing structure you can both afford and live with needs an experienced advisor. Knowing what’s truly viable and what is less likely in your circumstances, structuring a deal your business can afford, and protecting your future both in and outside the business requires someone on your side who can help you understand your options as well as your future personal responsibilities if your company becomes insolvent.
Even with new financing, a business may still be too damaged to save. For some small businesses, bankruptcy remains a painful but essential option.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
