Increasing Small Business Cash Flow Through Debt Financing

At Links Financial, we always aim to help our clients gain or maintain ownership of their business. This is one of our firm’s the differentiating factors. When a client recently came to us in need of capital, we did exactly that.

Late last year, a client approached Links Financial in search of an investor. The client’s company had been in business for 20 years selling a unique and effective patented product. While the company was well-established and its product had received several celebrity endorsements, it had a very limited cash flow available for marketing and product development. Our client wanted to increase brand awareness and to pursue new projects in 2016, but lacked the financing needed to go after either goal.

Capital: Investor vs. Debt

When a business owner needs more money, seeking out an equity injection in the form of utilizing an investor may seem like the obvious choice. However, engaging an investor means giving up some ownership or losing some control of your company. This often leads to having to manage diverse goals. Investors want to see a personal return of 20-25% and are less open to risky options or investments that could slow cash flow. Investors can also be impatient and want to liquidate their holdings before the owner is ready. Debt financing enables business owners to get and use “cheap money,” or a loan with a low interest rate, while maintaining full control of their company.

Overcoming Challenges

Our client’s company had seen good numbers in 2015 but had historically suffered several losses in years prior, making it difficult for the company to obtain financing. By the time the client called on Links Financial for help, he had been borrowing money at extremely high interest rates (“expensive money”) and his company was so tight on cash that it was hindering growth.

Increasing Small Business Cash Flow

When our client reached out to us for help finding capital, we were able to work out a new loan at a lower interest rate, enabling our client to keep 100% ownership of his company. We found a lender that believed in the product and secured an SBA loan for our client with a 6% interest rate. An SBA, or Small Business Administration, loan is issued by a bank but guaranteed by the U.S. government. The intention is to make it easier for a small business to obtain needed capital, and it is especially helpful in situations where the owner or company is not eligible for a conventional loan.

Changing the loan from a short-term to a 10 year term and reducing the interest rate from 20% to 6%, created an additional $35,000 in cash flow per month – immediately! We also helped our client establish a new line of credit to further extend their available capital and finance its growth. This increase in cash has helped the company start projects that our client thought would take years to get off the ground. Additionally, he is able to take advantage of the many opportunities that have always abounded, but had been out of reach until this year.

Financial Talk

Our client is on track to have his most profitable year, thanks to the deal Links Financial worked out for his company. Aside from financing with debt instead of equity and securing an SBA loan, our team was able to act as a financial liaison for our client. While our client knows his product well and is a brilliant engineer, he had trouble selling himself and his company to banks. Potential lenders want to see opportunity for growth without huge risks, and the financial advisors at Links Financial were able to tell our client’s story in a way that was appealing to these lenders.

If you’re looking to increase your small business cash flow, contact Links Financial today and ask us how we can help.

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