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Let’s face it. Entrepreneurs and business owners are always looking for money. I find it interesting that many folks running a business who need money don’t take the time to really understand how much money is actually out there and available to them. When words like “money, financing and capital” are used they can cause someone’s eyes to glaze over as these terms are associated with confusing and uninteresting concepts. The truth is that money can be complicated and boring to understand but it doesn’t have to be.
Here is what you need to know about how your business can #getmoney.
The single most important concept to understand is that there are three different groups of money available in the market that each come with their own trade offs. If you want to be successful finding money for your business you should have a general understanding of these three groups so that you know what tradeoffs your business may need to make.
3 groups of money: Banks, Mid Market and Private Lenders
First there is the bank. If you run a business you have an account with a bank and probably know that while they may offer the lowest interest rates they tend to have the toughest credit criteria and longest approval process. For a long term borrowing need this will be your best option HOWEVER there are two others that may be a good bridge until your business can meet the requirements of a bank.
On the other end of the spectrum are private lenders. This group of money comes with high interest rates, easy credit criteria and quick approval times. Private money should never be used for more than 6-12 months and is best used as a bridge or a means to another financial goal or objection like: improving sales, securing more contracts, dealing with a temporary working capital problem, etc.
And then there are mid market lenders in between banks and private lenders. A little bit more expensive than the bank but not as expensive as private lenders. The credit criteria is still tough but mid market lenders will apply a more “common-sense” view of the situation your business might be in and will be flexible as needed. The time required to access the capital is not as long as a bank but not as fast as a private lender because there is a due diligence process that needs to be completed but can be done faster than a bank.
All three types of money service a different need in the market. It should also be noted that deals between $250,000 – $10,000,000 are the hardest deals to do because they are too big for a bank branch (due to their approval limits) and too small for a corporate banker. This is because it takes the same amount of time and effort to approve and fund a $3,000,000 deal as it does to approve and fund a $30,000,000 deal but the compensation and fees are significantly different. When dealing with any individuals that work on behalf of a bank, mid market or private lender make sure you are talking with someone that can actually get your deal done based on its size and complexity.
The other general point to be aware of is that if your business needs less than $250,000 you most likely will be approved based on your personal credit history and net worth. A line of credit, credit card or loan will be approved based on the personal equity you have available to leverage. On the other hand, if your business needs more than $10,000,000 the approval will be based on the business itself with little or no recourse to you as an individual. However, if you are looking for $250,000 to $10,000,000 the approval will be based on the financial history and credit worthiness of both you and your business.
So if financing talk bores you to tears, stick with the basics explained here to make sure your business doesn’t miss out on the money that may be available to it.
I created mlenow.ca to help businesses looking for $250,000 to $10,000,000. Our team gets up every day to help businesses that find themselves in this position. Let’s chat and connect if you (or someone you know) needs some help trying to #getmoney.