5 places to find capital need to grow your distributorship

Published 5/29/2014 7:22:36 PM

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By Bridget McCrea

As the national economy continues its slow, lumbering trek to financial recovery, a number of companies are beginning to shake off the dust that gathered over the last few years and think about expanding current locations, opening new branches, and hiring employees. All of these moves require capital – a highly sought after commodity that hasn’t been easy to find and secure since the Great Recession.

Jared Siegel, principal at Portland, Ore.-based CPA firm Delap LLP says the capital spigot is slowly beginning to open up again and is prompting companies to explore their growth options. “Traditional lenders – such as banks and credit unions – have been sitting on cash, looking for good opportunities to extend business financing,” says Siegel. “Financing is loosening up somewhat and investments that were deferred during the recession are starting to show signs of life.”

If growth is on your distributorship’s agenda for 2013 – and if you require capital to get the idea off the drawing table and into reality – here are five good places to start your search:

  1. Free up operational cash first. Finding expansion capital could be as simple as tweaking and honing a distributorship’s existing operations. “Start internally with improved operations and systems,” says Siegel. Key strategies to explore include improving cash flow, managing and minimizing account receivables float (the negative float created between the time when you deposit a check in your account and the time when funds are made available), and partnering with vendors to establish more favorable, extended payment terms. “There is always low-hanging fruit within the business itself that – when addressed – can help generate growth capital,” Siegel adds.

  2. Hit up your local banker. If your company has had a long-standing relationship with a local bank, now is the time to sit down with a representative and discuss both existing and potential lines of credit, business loans, U.S. Small Business Administration (SBA)-backed loans, and other financing vehicles that can be leveraged to your firm’s advantage. “Traditional financing is still an excellent way to grow your business,” says Siegel, who cautions distributors that today’s bankers are not operating on the same lending guidelines that they did 5-10 years ago. “Expect greater scrutiny over numbers and ratios,” he says, “as regulators hold banks to a higher standard around liquidity and reserve ratios.”

  3. Tap into private investors. Investment firms that have been sitting on their capital reserves for the last few years are on the prowl for profitable places to put their money. “We’re seeing an increasing amount of capital becoming available through private entities,” says Charles M. Miller, managing partner at Carlton House Capital, LLC in Chicago. Distributors looking to move into larger digs or open a new branch, for example, should consider mezzanine financing (a hybrid of debt and equity financing that is typically used to fund the expansion of existing companies) options offered by private investment firms. “Distributors can borrow capital and then pledge some equity along with it to finance growth,” says Miller, who advises companies to use the web to find private investment firms interested in such deals. “There are literally thousands of small firms out there that make loans of up to $500,000.”

  4. Leverage your distributorship’s existing assets. Accounts receivable financing, factoring (selling accounts receivable at a discount to obtain cash immediately), inventory financing, asset-based loans, and the sale/leaseback of fully depreciated equipment, are all viable ways to generate more cash for your company. And while a single method such as accounts receivable financing may not generate enough cash to open a new branch, it can help create a larger cash reserve pool.

  5. Explore new financing options. Bankers and other lenders may have been sitting on their hands during the economic downturn, but that didn’t prevent alternative financing sources from cropping up. Take crowdfunding, for example, where a group of individuals network and pool their resources (usually via the Internet) to support efforts initiated by other people or organizations. If it sounds hokey, consider the fact that Kickstarter – one of the more high-profile crowdfunding sites – raised a total of $220 million from 61,000 launched projects since starting up in 2009. Three other popular crowdfunding sites to check out include GoFundMe, Crowdfunder, and FundaGeek (for technical innovations).

Regardless of the financing channel(s) that you choose, Siegel says the best way to get to “yes” is by having a solid, updated business plan that clearly articulates your distributorship’s success path and the role that expansion will play in that success. Master your financials, he adds, and be ready to answer detailed questions about those figures.

“You know your business better than anyone,” says Siegel, who singles out “business predictability” as the most important financial theme for 2013. “Perspective lenders and/or investors want to be confident as they underwrite your business; being able to demonstrate predictability will help boost that confidence and increase your chances of getting financed.”

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McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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