Most businesses eventually become stagnant for a variety of reasons. They may run out of new markets, the may lack innovating strategies or management may decide to grow at a slower rate. One of the contributing factors to business stagnation is lack of capital or the perception of the difficulty of attracting new growth capital. As banks have consolidated, many businesses have lost the local connection with their local bank relationship officer.
Also, lending decisions have moved from their region to a headquarters location. Nowadays, business owners have a harder time calibrating whether or not they will get a loan approval. Banks have made it very hard for businesses that want to grow because they have become more restrictive over the past 5 years in the face of stringent regulation.
They want to do asset based loans and only asset based loans because these are the only types of loans where they are secured. Yet, there are loans out there that may be exactly what your business needs to get to the next level. An increasingly common strategy is reviving your business through unsecured business loans. Unsecured business loans are loans not provided by banks but by non-bank companies such as finance companies, mezzanine firms or capital firms known as business development corporations.
They are able to make unsecured loans because they have a different method of evaluating a company’s creditworthiness. Rather than focus on the asset strength, they focus on the company’s cash flow generation and the ability to service the interest and principal payments of the loan.
Unsecured business loans are known as second lien or mezzanine loans and they are in second place after the bank loan on your balance sheet. This means they are not secured by hard assets and are subject to restrictions by the secured lender. Unsecured business loans are similar to receiving equity investment in your business because it allows you to do transformative things, much like you would if you brought new equity investment into the company.
Unsecured business loans are more expensive than secured business loans, which reflects the riskiness of the loan. Unsecured business loans have the power to unleash strong growth and let you get to places you cannot reach with bank loans.
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