Emergency Financing Alternatives

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Asset-backed financing
While you are unlikely to obtain new or additional unsecured bank lending if you are facing a cash crunch, you may be able to obtain asset-backed financing. Try approaching nonbank sources such as commercial financing companies. Unlike most bank lending, true asset-backed lending focuses primarily on the value of the asset used for security, rather than the ongoing cash from the business.

You do need to keep in mind, however, that such lenders, unlike banks, will seldom hesitate to seize your assets after even a few missed payments. And you may also have to pay a stiff premium over traditional commercial bank loan rates.

If you are already borrowing from a bank, you need to be sure that borrowing from another source does not violate your loan agreement. And, even if it doesn't, do keep your bankers apprised of any other borrowing you undertake. If you do look creditworthy to another lending institution, even if it is nonbank, your banker will probably look more favorably upon your account.

Factoring
If you have a good amount of solid receivables, factoring may enable you to raise a lot of cash in a hurry. Factoring firms are private nonbank lenders that buy, outright, your creditworthy receivables and collect them at their own risk. Even discounting the element of risk that factoring companies assume, they will typically seek a higher premium than bank lenders offer. This is especially true if your business is facing difficulties.

Lease-back
Look around your office. The furniture, computers, fax machines, phones, and any other equipment you may own have a cash value. You can realize the value of your assets in instant cash and still retain the equipment for use in your business! You just need to find a leasing firm willing to buy the items from you and lease them back to you.

Leasing is similar to asset-backed lending. First, the financing is based on the value of the asset. Second, you will probably pay a significant premium over that of a bank loan. One major difference, though, is that the leasing firm will actually own everything you lease. Since all the equipment belongs to it, it won't hesitate to take physical possession if you fall behind in your payments.

A big advantage to leasing is that, even though it must be disclosed as a footnote in your financial statements, it doesn't actually appear as debt on your balance sheet. It isn't considered to be as onerous as debt by debtors and other lenders or suppliers.

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