5 Alternate Ways To Locate Capital

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OCEAN CITY – The state of the global economy has
improved relative to a year ago, but with lingering uncertainty and with
consumer confidence still susceptible to swings, many small and midsize
companies continue to find it challenging to find capital.

Here are five ways that companies may access
the cash they need to grow or transition or simply to cover expenses until the
markets rebound.

Consider using your assets. As lines of credit have tightened, asset-based lending — loans

secured by inventory, accounts receivable, equipment and the
like — has increased in popularity. Although the number of new
asset-based loans recently dropped slightly (by 2.1%) in the first quarter 2010
over the end of last year, this shift comes on the heels of a 29% increase in
the third quarter of 2009, according to the Commercial Finance Association.

"Using assets to secure loans has become a
much more mainstream approach," says Marilyn Landis, president and CEO of
small business consultancy Basic Business Concepts, in Pittsburgh. She notes
that lenders are willing to consider a long list of assets and flexible
formats.

Explore angel investing. For companies past the startup phase but not yet ripe for venture capital,

angel investors can provide a lifeline in exchange for a relatively small
ownership stake in your business. Start by looking for investors close to home
who have a particular interest in your industry or sector and will have greater
patience for growth. You may want to ask your attorney and accountant whether
they know of any angel investors, and check with your nearest Small Business
Development Center to find a local angel group. "This is a particularly
good time to seek new investors," says Rob Snead, senior vice president,
Bank of America. "A lot of people displaced in this job environment are
basically looking to partner."

Reach out to peers. Many communities also have regional lending clubs that are sometimes

affiliated with local business associations. These clubs are somewhat similar
to angel investing groups and are designed to support worthy small businesses
in the area by pooling their resources to provide them with small loans.

Try the SBA. The
U.S. Small Business Administration’s loan programs make it easier for
traditional lenders to take risks on small companies by guaranteeing the loans
and thus lowering the lender’s risks. Through May 2010, SBA-backed lending had
increased 90% over the previous eight months, an increase largely attributable
to stimulus funding from the American Recovery and Reinvestment Act of 2009.
For companies needing capital to purchase real estate or equipment, the SBA’s
CDC/504 program provides long-term fixed-rate financing to acquire fixed
assets, and is usually available faster than other SBA loans.

Look inward.
Taking on more debt may only make matters worse if inefficient business
practices are leaking money. "Many companies can find cash by really
looking hard at internal operations," says Landis. Business owners can
boost profit margins by cutting out fat, putting more efficient machinery on
the production line and reducing the cost per widget by even a few pennies,
which eventually adds up.

To be sure, companies with a proven concept, a
plan for growth and the drive to make it can use the same business sense and
ingenuity to locate critical capital.

(A
Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)

 

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