Banks Not Lending? How To Fund Your Business

One of the biggest issues faced by business owners looking to grow their businesses is access to credit and the willingness of the banks to lend.

The fact is, banks have a limited lending capacity and there is a natural pecking order as to who shall have access to what. The government usually comes first, followed by government related entities, large businesses, smaller businesses and consumer lending falls last.

Further, during economic downturns, when everyone wants access to funding, it is less risky for banks which will also be suffering losses on extended loans and seeing their lending capacity shrink, to roll-over credit to their existing portfolio of clients with the highest credit scores than to lend to new businesses with no track-record.

Having said that, it is possible for you to go ahead with your plans using other types of financing which could be more suited for your business than a straight-up bank loan or overdraft:

NON-BANK LENDERS: It is more efficient for banks to lend to non-bank lenders who will in their turn extend financing to SMEs. These include vendors who offer leasing and hire-purchase arrangements and asset backed financing such as factoring and invoice discounting which can immediately ease pressure on your working capital.

PEER TO PEER PLATFORMS: by eliminating banks as the middle men, crowdfunding platforms such as Eureeca for capital raising and Beehive for peer to peer lending, are reshaping the finance sector and redefining the adaptability of the economy.

MEZZANINE FINANCING: in limbo between debt and equity, mezzanine capital which typically carries embedded options claims a higher interest rate than straight-up debt but is less expensive than equity. It is usually used to fund growth opportunities along with equity and senior debt. It has the advantage of reducing the dilution potential of the initial shareholders and improving returns to equity by reducing the equity injection.

 EQUITY ISSUANCE: bringing a strategic partner on board will give you:

  • Access to funding capabilities that will allow your firm to achieve its expansion strategy
  • Access to a wider pool of human capital capabilities and resources to expand the business
  • Enhancing the business market power through size in a supplier/client denominated business
  • Providing growth opportunities for your employees both technical and social

Depending on where you are on your business cycle, an equity issuance can be done through an angel investment for start-ups, venture capital funding, private equity funding, a stake sale to a trade buyer, a private placement or an IPO.

Click here to schedule a meeting and explore your options

Lumina adds value to owners seeking to grow or exit their business by providing external guidance on decisions that matter.

To find out more about Lumina’s Transaction Advisory services offering, click here.

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Jessica Estefane

By Jessica Estefane, CFA

Director | Lumina Advisers

Jessica has been working with the firm for the last 3 years playing an integral role in closing a number of deals in the Education, Healthcare and Food and Beverage sectors, before joining full-time in October 2016. Jessica continues to play a vital role on all key mandates in the Transaction Advisory and Funding Solutions divisions.

Jessica is an experienced transaction advisory professional with 10 years of experience in the UAE. A former sell side Equity Research analyst with SHUAA Capital, Jessica ranked among the top analysts in the Middle East region for equity research in the telecommunication, energy and utilities sectors for four consecutive years by Euromoney Middle East until 2012.