Part 3: Increase Sources of Funding
The Financial “Survive and Thrive” Plan for Entrepreneurs: COVID-19
Today’s article will look at how to find increased sources of both traditional and more creative funding that you might not have already actioned.
This is the third installment of the Financial “Survive and Thrive” Plan for Entrepreneurs. . If you missed the first two, I invite you to read the first article and the second article. These are meant to build on each previous article, so if you haven’t read them, it’s a good idea to have a look at those first.
Increase Sources of Funding
Despite the uncertainty and fear about the economy, there is still TONS of money on the sidelines. Your job is to creatively access these funds to put yourself in the best position to financially survive, then thrive. Below is a list of options you should consider to buy yourself a longer runway to implement strategic initiatives and business changes as needed to thrive on the back end.
- Traditional Banks and Credit Unions. The same way that your suppliers don’t want you to go down and your landlords don’t want you to leave space open, your bank wants you to be around for a long time, too. Banks know they have a huge role to play in providing capital to businesses through these tough times and will be working hard to fund as many businesses as possible. We’ve already seen some banks loosen up repayment terms for mortgages and there will be many additional programs to come.
The most important bit? Take your “financing ask” to multiple banks. Banks have different strategic priorities at different times. Some may shut down new loans during this crisis, some may be wide open for business. Some might not like your industry while others are pushing hard to increase loans for businesses exactly like you. I’m always surprised when applying or supporting someone applying for a loan that one bank gives an outright no and the other rolls out the red carpet. If you need funds to get you through the rough waters ahead, applying to several banks should be priority #1.
2. Secondary lenders (aka sub-debt, or subordinated debt lenders). With so much money on the sidelines, it’s mostly a matter of finding the right group to ask for money. Like banks, there are many secondary lenders with different assessment criteria. These lenders are generally willing to accept more risky loans (probably like they type you’re about to ask for) and also expect a higher return. The “sub-debt” part means they are subordinated to the bank. So, if things go south, the bank gets their money before the secondary lender gets theirs. Hence why you’ll pay a higher rate. If you’ve never played in this space before, you’d be wise to find someone who has expertise in dealing with sub-debt lenders. There are some risks that you should be made aware of before you sign any deal. Your lawyer or accountant should be able to recommend someone to help you out.
3. Government Assistance. By the time you read this, the government has likely introduced even more assistance programs. So far, we’ve seen delayed tax filing deadlines (check for the latest so you don’t go offside), loan assistance (in Canada) and a variety of other measures. I expect these measures will keep being announced to preserve businesses and jobs as much as possible.
A strong recommendation would be to assign an employee to the task of checking daily on what new government programs have been announced. They should be checking at the Federal, State/Province and municipal level. Every boost helps and you need someone checking while you’re busy fighting other fires.
4. Other / Unconventional Lenders. As part of the Financial “Survive to Thrive” program, it’s important to look for other lenders that you wouldn’t normally consider a lender. If your landlord is well capitalized, perhaps they would consider not only giving you a rent holiday for a few months, but maybe also giving you a loan that gets amortized into the remaining lease term (or extended lease term). I’ve done that myself with a previous manufacturing business when I needed some capital to get through a tough spot. (Actually, I did it twice).
How about a key supplier? Perhaps if you have a supplier that has a large cash reserve or may have experienced a boost in sales because of COVID (remember, I used to manufacture hand sanitizer and would be having my best month ever right now if I was still in it), they might be interested in a loan. I get that it might feel risky to call a supplier and ask. But remember, they really don’t want you to go down. If you have a long track record with them and you trust your business will recover in time, they might be open to offering a loan of some sort.
5. Survive to Thrive Partners. At the risk of sounding like a broken record, we need to find ways to survive together to thrive together. Who in your network can you partner with to create funding strategies together? How can you offer your services to businesses that need it at a discounted rate so everyone suffers a bit but makes it though so you can thrive on the back end? There are so many partnerships and communities that can be built right now to leverage and create positive change for the future. Make a list of who you have great relationships with and pick up the phone. I suspect they will be happy to hear from you and more than willing to spend time brainstorming some ideas.
6. Ask your staff. As entrepreneurs, we tend to take everything on ourselves. Have a team meeting and ask if anyone has any ideas. You never know. Maybe the intern in the stationary room has a billionaire uncle looking to invest. It’s a long shot. But with no downside, why not ask?
It’s time to step back and reflect a bit.
