Small Businesses Need Plan to Seek Financing
NEW YORK (TheStreet) -- It's no secret that capital access for smaller companies has been difficult, at the very least, for the past few years.
But as the economy works its way forward, financing for small firms will also come back, and small businesses should be educated about the opportunities. From bank loans to peer lending, options for small businesses can be confusing and overwhelming.
|Small businesses will have an easier time with lenders if they go in with reviewed financials and a plan for using loaned capital.|
Ron Walker is co-founder and partner of Next Street, a Boston-based merchant bank and adviser serving small urban businesses typically 15 to 20 years old and with $5 million to $60 million in annual revenue.
Walker spoke with TheStreet last week about small-business owners choosing wisely and preparing to finance their business needs.Where do investors and lenders typically prefer to see capital used? Walker: They want to see the money being used to assist in executing whatever the model is for the business to generate the desired results, i.e. profitability. So if you're going for operating capital, they want to see a detailed analysis of what that capital is used for, whether it's for people, whether it's for building your operations, whether it's for executing on models, etc. ... They want to know and see pretty clearly what the capital will be used for, but ultimately today they want to see what the result is. Secondly, if it's more senior capital/senior loan types of capital for purchasing equipment, they want to see what it's being used for, what's the value, what's the return, but most importantly they want to make sure it's being used correctly. What you see in some businesses that didn't ask for enough capital is that they start using the capital for the wrong reasons. For example, if you had a line of credit and need to buy a piece of equipment, but you're maxed out on your term loan, some businesses may use that line to purchase that equipment, and that actually is a very bad flag on the business as they go for more capital moving forward. How does a small business that's not used to dealing with banks and outside investors decide what type of financing is best for them? Walker: I will always go back to the importance of doing a strategic plan. The real issue is growth capital -- what it's going to take to get that business where it needs to be in, say, the next three to five years.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV