QUESTION
During the recession my sales dropped by about 25%. I made cuts in overhead, my salary and everything possible I stayed current on all payables but the bank froze my line of credit. I can’t grow the business back without some credit. How do I get the financing I need to grow?
ANSWER
This is a fairly common concern. The number one issue I see with small businesses is undercapitalization, and this can cause failure more often than I care to admit. If the business in question is recovering in recent months or in 2010, I would recommend speaking to the commercial loan officer with a written business plan in hand and projections. If the plan is strong, and includes how the projections were determined, perhaps a portion of the line may be termed out, and the remaining funds could be used to fund temporary WC needs.
Offering to pledge additional personal guarantors and additional collateral may also help. For example some lenders may take W-2 salary from a different source as possible repayment from a new guarantor not affiliated with the business. A spouse would be a prime example. Additional collateral like real estate with lots of equity may also tip the scales.
If this doesn’t change the lenders decision I recommend alternative financing assuming there are good assets available, like real estate or non-delinquent accounts receivable, or lastly, an equity investor.
Answer by Ed Nunes, TD Bank. .