Money isn’t everything as long as you have enough. ~Malcolm Forbes
It’s late into the 4th quarter of FY ‘22 and you are undoubtedly pressing hard to finish big and grab any last awards that may be in your area of expertise. It’s a good time to start looking at all of the options available to you to fund that growth and that which is prospectively yours in the months ahead. While we are happy to consult with you any time, it is always easier to make a game plan before that proverbial Hail Mary is tossed rather than trying to figure out what to do while the ball is in the air. With so many variables making traditional financing a little more stringent than usual, looking into your available options with alternatives to your bank is a good idea now more than ever.
You’re in rapid growth mode
Rapid growth is why you work as hard as you do for your business. Although this is an attractive reality to you, it most likely isn’t to your bank. Your bank likes solid reassurance that you can perform in paying back what you are given, so if you run into a series of contract awards that make the need for cash exceed what the bank will give you, alternative lending is your most viable option.
The bank needs to see consistency and stable growth over 18-24 months, and even in the best cases, banks will not be able to give a small business what is required for some contract terms and timelines that necessitate lines of credit with high balances, like some IDIQs with short task order turnarounds, for instance. If you need a facility increase quickly, the bank will have difficulty providing this to you.
Having a financial partner that can allow for increases to your line in the amount you need, when you need it, and vouch for your ability to fund the work can create more likely odds in your being awarded the opportunity. Trust me, the government buyer will be inclined to pay attention to you if you bring a letter of financial capability with your RFP.
It’s time to scale
Most often we find businesses needing cash infusions to fund growth to their payroll due to hiring employees to satisfy the work requirements for contract awards. If this growth is outside of the realm of your performance period the bank uses to decide what more they can do for you, you may not be able to secure the funds for this through your current line of credit.
On the alternative side, if you are using factoring as your financing option, and need upfront funds before an approved invoice is available, you will need to find an avenue that provides upfront cash by means of using your work in progress or unbilled labor as your collateral. When you don’t have an invoice to sell to your factoring partner you have no collateral to use for funding.
Shifting your focus
If you have decided to reinvent your business through new offerings of goods or services, you will most likely be back to square one with your banking partner in terms of access to cash. We work with businesses that through a decline in their work have decided to pivot toward another proficiency or focal point of offering and reinvent their presence in the marketplace. While a bank most likely will not consider your prior past performance viable for their current lending requirements, an alternative option has the ability to see outside of the narrow scope of the bank. If you are winning contracts and can fulfill the obligations of the work then you should not be held back from doing so because your bank wipes the past performance from your slate once you begin anew.
These of course are just a few of the reasons alternative lending exists. As always, we encourage our network to vet all sources and compare with one another to be sure you are getting the best options with a price that will not gobble up too much or exceed your profit margin.
Our team is happy to provide a free consultation along with cash flow projections to show what your financial functionality needs to be to perform at the highest level on your next award. It is best to engage before you win so you have the backing and security of a lending partner that actually understands the industry and can get you the amount you need, when you need it.