PMF Bancorp/ How to Find the Right Money?

1. PMF Bancorp/ How to Find the Right Money? How to Raise the “Right Money” for Your Business…. I have seen my business clients raise money in many ways to grow their companies, but they have made many mistakes. Having been a commercial lender for 20 years and being focused on helping companies from typically $1-20 million in sales raise capital, I can provide special insight on how to raise the “Right” kind of money. Raising Equity is really a decision for the owner to make and is very subjective so let’s focus on raising money through various loan products common in the market. Here is how to start finding the “Right Money” for your business…. Finding the “Right Money” from Banks. Having an A+ Credit score definitely helps, but does not guarantee you will raise the “Right” kind of money or loan. Many good companies look at SBA (or aka the Small Business Administration program) loans which are loan programs that many banks use. These loans are supposed to be easier to get because the US government is guaranteeing 90% of the loan; however, banks still underwrite these loans with their same strict criteria so unfortunately these loans are still tough to qualify for. The SBA has a 7A loan product which is typically based on a business’s cash flow and the 504 program which is typically an SBA loan based on real-estate. So you are thinking, if I qualify for the loan, then I am set…right? No, wrong. It is important to get the “Right” money and the “Right” loan for your business. The SBA is designed for a small, relatively stable business that grows in small increments. If your business is set to grow quickly, you need to look at another financing product or the SBA loan could really damage your business. There is nothing worse than getting a loan that is too small for growth and ties all your assets up…this is what an SBA loan is. For the faster growing companies, we need to look for the “Right” money. Large lines of credit for larger companies have more flexibility, but these kind of loans are set aside for A+ credits where the company is doing at least $10-$20 million in sales per year. Finding the “Right Money” from a Cash Advance Company or a Small Business Loan Lender For a small business with limited credit, there are good alternatives to a traditional bank loan, but there are pitfalls here too. Merchant Cash Advance or Small Business Lenders that offer money overnight are good in the sense that you can get a quick sums of $50,000 to $200,000, but the impact on improving your cash flow can be very temporary. Merchant Cash Advance will lend against your credit card sales and typically ACH money out your account daily to repay the advances. The Small Business Lenders lend against your ongoing operations, but

2. their repayment schedule really hurts cash flow as they take money every day out of your checking account via ACH. Loans that have heavy repayment schedules are typically not the “Right” money for a business because most businesses need a better cash flow solution, whether they know it or not. Find the “Right Money” from Invoice Financing (aka Factoring invoices) Small and large businesses can often benefit from a factoring company’s services if they have invoices and customers they sell to, with 30 or 60 day terms. Factoring your invoices is actually the process of selling your invoice for cash for a discount. The discount is typically much less expensive than the Merchant Card Advance or small business loan that the overnight lender’s charge. Raising the “Right” money from factoring accounts receivable are predicated on your business having accounts receivable. Large to small businesses use a/r financing (or aka factoring) because it provides large amounts of money right away and it does not hurt cash flow like the other business lenders such as Merchant Card Advance or Small Business loans. The reason invoice financing works more smoothly is that you receive a high advance rate on your collateral and there is no ACHing your bank every day. Additionally, the factoring company is repaid only when your customer(s) pays so you don’t have to worry about scheduling a repayment to the factoring company for any of the money your business was advanced. Factoring is also a great way to raise cash without increasing your debt. Yes, it’s true that when you factor an invoice, there is no extra debt or loan booked … your factored advances can be shown as an increase to your cash without the liability to your balance sheet. Factoring with a flexible commercial lender can also bring many other lending products to a growing business like trade financing, inventory, PO finance, and more due to the maturity of the industry. At the end of the day, I have learned as I have underwritten 1000s of companies that each business, even when in the same industry, have their own unique issues and solutions so taking your time to understand where to find the “Right Money” will pay huge dividends in the future. Just remember that Cash Flow is King and your goals is to build your enterprise value (aka sales & organization infrastructure)…if it costs a little on the way up, then you are in good company with the thousands of other successful entrepreneurs in the U.S. Best of Luck! Stephen Perl, CEO/CFO 1st PMF Bancorp LinkedIN Twitter Facebook