Tips for Raising Financing in a Cold Banking Market

If your company has had a few tough years, chances are your working capital is stretched and you held back investing in new growth areas. Even if your company weathered the recession well, you are likely to need outside capital to spur faster growth. Prior to the Financial Crisis and Recession, banks were providing ample loans at low pricing. Now that Banks have tightened, they are often interested in reducing their borrowings at the very same time that your company needs more capital to re-start growth. The best way to deal with this situation is to explore non-bank alternatives. Non-bank alternatives broadly defined consists of finance companies, mezzanine capital providers and growth equity providers. These firms are set up to provide long term capital to companies to support their growth. Unlike a bank, they DO NOT lend off of a company's balance sheet but rather advance on the basis of equity valuation and cash flow. This approach allows them to provide more capital to a company than a bank would. Due to their focus on cash flow, they can always provide asset-light service companies with larger loan amounts than a bank. Not only can they provide greater sums of capital, their terms are more favorable. A Mezzanine capital provider typically provides a 5 or 6 year term with the first several years on an interest only basis. This is useful for companies that prefer to reinvest their cash flow in the business in the first few years as opposed to making principal repayments. A mezzanine capital provider typically does not require a personal guarantee, unlike a bank. The price of mezzanine capital is certainly more expensive than a bank loan, but the cost is easily outweighed by the size of the loan you receive. With more money to invest in the business, you can turbo-charge growth. A mezzanine capital provider is more focused on the long term growth of the business and gives their borrowers the freedom and opportunity to pursue their growth vision. It is a great solution to the current icy conditions in the bank lending market and can be a very valuable resource to the long term growth of your company.


David Barnitt founded Attract Capital in 2000 to help small and mid-sized companies raise growth capital. We help companies with >$15 million in revenue raise mezzanine capital for growth, acquisition or buy-outs. Clients are growing companies that tend to be asset-light and non-bankable but need capital to spur growth. Our channel of Mezzanine Capital providers is large ($20 billion) and active (100+ capital providers, over 200 deals per year). David is a CPA/MBA -with an Undergraduate Degre...

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