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financing

Start-ups are bound to run into severe lack of cash flows. For a long time you can expect to be burdened by a huge build up of debts. Often you own family members, or partners and their family members seem to be the only working resources in your company. It is a given that it takes a long time before any one of you begins to even get paid.

It is only gradually that substantial annual revenues begin to show up. With time, banks begin to bestow greater trust in your business venture, and sometimes even offer unsecured lines of credit. Finally, you begin to realize that you have a few weeks worth of cash in the banks to sustain. This later on gives way to a few months worth of cash balance and in future to a few years worth or even decades worth, if your business turns progressive enough.

* Starting up a new small business venture

As you start a business with a particular objective, you will realize in due time, if you are attached to the objective enough to follow it up to its end. Sometimes you start with one objective, but by the time you have reached the end or even figured out how to reach the end, you may have realized that it is not your passion anymore. This is the beginning of your journey of trials, errors, failures, learning, and reaching that point, where you know exactly what it is that you are really really ready to follow up to its very end and ensure that you succeed.

It may initially take a few years just to figure how to get started from scratch and find a stable footing. By the time you figure out what you really want to do, you may also have matured enough to know that though you are doing something new, you know the exact roadmap that will take you to your objective. That is to say, by now you know what you are really good at and what you can really execute, and how it really interests you.

* Requesting loans from subordinated or mezzanine debts

Here, the lender examines your business to check if your venture generates a healthy cash flow. However, the lender also understands that you probably do not have a collateral. Instances of collaterals include real estate assets or other material non-liquid assets like equipments that can ensure a bank loan. All that banks do is really just indirectly loan you your own money. Only if you are the kind of person that can provide some tangible assets as collateral , then you get entitled towards a loan that amounts to a fraction of such assets.

As a small business owner, you may not be the kind of person that has factories or expensive machinery that you can provide as collateral to a bank. On the other hand, venture capitalists generally tend to invest in businesses that can somehow prove that they can execute a promise of being the next Google. Out of a hundred presentations made to venture capitalist, just one or two companies tend to raise capital for themselves.

As such, subordinated money lenders are the best option for small business owners. These lenders look at your current cashflows to see if you can repay the loan on a regular installment basis, in addition to showing a promise of growth. Such lenders can offer up to thrice to fourtimes the volume of cash flows that you currently generate. Some typical examples of circumstances, in which mezzanine lenders offer loans, are illustrated as follows:

- Firms that project an upward cashflow

- Companies that want to perform acqusition of other companies as part of their expansion plans

- Companies undergoing a drastic restructuring in their ownership framework

- Companies wanting to move on to a different kind of business

- Companies facing heavy upfront costs due to geographical expansion and company infrastructure expansion plans for servicing large clients

Learn more about this author, Arrnica Dayannandan.
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