Call Us: (947) 517-7701
Alternative Smarts ...
One of the unfortunate ironies of seeking small business financing is that when your business needs cash the most, traditional bank loans can be the hardest to get. It's not difficult to understand the reason: If your business is in a financial crunch, bankers may be nervous about your ability to pay them back. But that doesn’t mean financing is out of reach. Alternative financing by asset-based lenders and factors may be the answer for those who don’t have the credit score to qualify for bank loans. Many small companies are taking this option. The Commercial Finance Association(CFA) reported that the U.S. asset-based lending industry grew by 8.3% in 2008, with nearly $600 billion in loans outstanding. “Some of our lenders are up to their eyeballs with loan applications,” says Brian Cove, chief operator officer of the CFA.
Common types of alternative financing
Asset-based lenders loan money against fixed assets, accounts receivable, and inventory, basing the amount they are willing to lend on the value of this property. Many make secured loans, in which the borrower must offer collateral such as machinery, inventory, real estate, accounts receivable, patents, trademarks, or other assets. The lender can seize and sell the property if the borrower doesn’t pay back the loan. Both banks and commercial finance companies make asset-based loans, says Cove. “Often, in the larger banks, they’ll have a whole unit that is dedicated to it,” he says. In factoring, a financing institution, such as a bank or factoring company, will often buy a company’s accounts receivable and take on the job of collecting the money due from its clients. In some cases, the factor will finance for up to 90 days from the time the company delivered its goods and services to a customer, but the client is responsible for collecting the money owed by its clients. After 90 days, the company must repay the factor. One plus of factoring is that you can use it even if your company only has a few invoices that need collecting. “Factoring can work for an early-stage startup,” says Marilyn Landis, a former commercial lender who is now principal of Pittsburgh-based Basic Business Concepts, which provides financial management services to businesses around the country.passage of the Small Business and Investment Act of 1958. The first investors in private equity were wealthy individuals.
What are Alternative Investments?
An alternative investment is an investment product other than the traditional investments of stocks, bonds, cash, or real estate. Alternative’s include tangible assets such as precious metals, art, wine, antiques, coins, or stamps and some financial assets such as commodities, private equity, hedge funds, carbon credits, venture capital, forests/timber, film production and financial derivatives.
Private equity was the original alternative investment, dating back to 1946 with J.H. Whitney and American Research and Development Corp. Private equity gained steam after the passage of the Small Business and Investment Act of 1958. The first investors in private equity were wealthy individuals.
A recent study (see below) indicates that in 2009, in the aftermath of the Great Recession, the typical individual investor had virtually no exposure to the so-called alternative investment asset classes. Whereas large institutions had approximately half of their portfolios allocated to "alternatives.”
According to a recent survey 68% of advisors have increased their use of alternative investments since the financial crisis in 2008.* Whereas alternative investments were once an option for only institutions, endowments and high net worth individuals, alternatives have become more mainstream over the last few years. Yet, there remains widespread confusion amongst investors about what alternative investments really are.
