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5 places to find capital need to grow your distributorship

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.”

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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