You’ve grown your middle market business from nothing and nurtured it through years of ups and downs. Suddenly, though, you find yourself feeling like a startup again: You’ve identified a fantastic opportunity for growth, but you don’t have the liquidity to make it happen.
It’s a nerve-wracking decision — how can you come up with the funding you need without linking yourself inextricably to an investor who may not love the company like you do? Fortunately, thriving middle market businesses have funding options that may be out of reach for startups. The key is to make sure you explore all of your options before making such an important decision.
M. Allen CEO & Managing Director at DelMorgan & Co., Matt Slonaker, advises, “The most important thing is to have a full set of potential options. A lot of times, people don’t have a good process in place for assembling those options. They take the first thing that comes along.”
Slonaker goes on to explain that, in the past, it was harder to identify all of your options without spending a lot of time and money courting potential investors. Today, Slonaker says, “You can spend 10-15 minutes creating a free profile and providing us with some basic information, and get a pretty comprehensive set of options.” While investment banks like DelMorgan & Co. can help owners find traditional sources of funding — like mezzanine funding, senior funding, and equity funding — it’s also a great avenue for owners to learn about some of these lesser-known options.
Invoice Financing, also called factoring, is similar to what happens when your mortgage company sells your loan. You sell your invoices to a lender, who fronts you a portion of the total—sometimes up to 90 percent. That lender collects payment in accordance with the terms —30 days, 90 days, etc. He then pays you the remaining balance, minus fees. In addition to freeing up working capital, invoice financing lets you outsource your accounts receivable, thereby reducing your operational costs.
Purchase Order Financing is an option when you need an immediate inflow of cash to purchase the materials required to fulfill a big order. The lender pays your vendor, allowing you to acquire the materials without having to pay for them until your customer pays you. What’s unique about this model is that the loan is based on your customer’s credit rating, not your own. It’s especially helpful when you land a government contract, or one with a multinational, blue chip organization.
In Supply Chain Financing, another company in your supply chain — whether above or below you — uses their good credit to secure a loan for your business. It’s a type of collaboration based on the reality that their success is dependent, in part, on your success.
Property Equity Financing is similar to a home equity loan. You take out a loan secured by the value of your commercial property, and use that money to purchase equipment, additional property or facilities, and other supplies. It’s a great way to liquidize capital while still retaining ownership of your assets.
Today’s middle market business owners don’t have to miss out on great opportunities simply because they don’t have the necessary liquidity. There are a number of creative funding options that can help you take your business to the next level. The key is to determine which one is right for you.
To learn more on how we are helping owners and companies, please download the attached introductions. One related to DelMorgan & Co. and the other is an overview of M. Allen's growth consultancy.
Let's grow together!