Each day we open the local newspaper, peruse the pages of our favorite business publications or surf the Web, and are met with gloomy headlines about the now yearlong recession, frozen credit markets, layoffs, waning consumer demand and business failures. Yet, in the midst of all those dark clouds, if we really take a closer look, we find there are financing deals closing every day.  It’s not as predictable as we’d like, and funding doesn’t come as easily as it once did, but the fact remains that deals are getting done.

In the past several months, people have seen and/or been involved in several cases where critical projects have been completed in a variety of industries that were fueled by the proper funding. There are two critical “musts” to finding the right funding solution for your company in this current economic climate. One, you must complete the required planning upfront and present a well thought out, comprehensive funding request; and two, you must be innovative and creative with your approach while considering multiple funding options.

Complete the required planning and present a comprehensive funding request.
It is essential that you thoroughly think through and assess the current state of your business and specifically how additional financing will help to increase sales, create a competitive advantage, expand your offerings, and/or improve profitability and cash flow. Challenge your management team and encourage new thinking that results in a definitive plan to achieve your business objectives and ensure the long-term success and financial health of the company. Determine in very specific terms how the funds will be used and what sources of cash flow (e.g., profits, sale of assets, other capital) will be used to repay the loan or provide the desired return on investment.

Your funding request must achieve several objectives, including: 1) present a clear overview of the company and its operations as well as the purpose of the funding request; 2) provide a snapshot of key historical financial performance; and 3) provide the reviewer with the  summary and detailed information required to easily present your funding request to their loan committee, investment partners or other constituents.

Funding requests can take many shapes and forms, but there are common elements that are critical to any comprehensive package:

1.    Loan request summarizing funding amounts, sources and uses of funds, desired terms, and so on
2.    A well-written and concise background/overview of the company and business operations
3.    Key historical financial information, pro forma forecasts, and schedules
4.    Detailed financial information to support the summaries and forecasts
5.    Trade references (suppliers and customer/clients)

Be innovative and creative while considering multiple funding options.
Depending on the nature of your business, the industry segment you are in, how long you have been in business and your historical financial performance, you may likely need to consider multiple sources of funding, including the syndication of two or more sources.

Traditional banks

If your company has been in business for many years and has an established track record of profitability and the ability to repay its debt obligations, a revolving line of credit or term loan with a bank may be the right solution. Generally traditional bank financing will include a lower cost of capital, contrasted with a lower tolerance for risk by the lender.

Asset-based lenders

Companies that are well collateralized with tangible assets and/or a fairly reliable stream of accounts receivable may be very good candidates to seek funds from an asset-based lender. These institutions provide the working capital necessary to operate the business in exchange for a secured position in the assets of the company.  Asset-based loans generally come with a higher cost of capital (through higher interest rates and fees), but these lenders tend to have a greater tolerance for risk.

Equity investors

If debt financing is not available to you or does not meet the cash flow needs of your company, an equity investment may be the best option for funding. An equity investor is generally more willing to take on risk and will not likely require the short-term repayment of the capital. Instead, these investors require an ownership position in the company, as well as some level of “preferred return” over other owners/shareholders. Sources of equity capital may include individual investors, private equity funds (for established companies) and venture capitalists (for start-ups).

Trade services

You may want to consider exchanging services with a partner company you do business with to help preserve critical capital and provide the necessary cash flow to weather a storm or grow the business. Beyond that you may consider offering stock in exchange for contracted services. This approach can be especially beneficial to start-ups or established companies looking to expand into new lines of business.

As always, if you are unsure about how to find and secure the required capital for your company, seek the advice of a qualified financial and/or legal professional.

As we press on in 2009, let’s take the time to look beyond all the bad news and focus on the positive opportunities that still exist. If we keep our minds open and commit to being as innovative and creative as possible, this year may turn out to be better than everyone thinks.

		Peter J. Fortin is the managing partner of Fortin & Chunko, PC, a certified public accounting and consulting firm located in Lansing.