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March 6, 2017 Experts Corner

Debunking myths about business-growth financing

Jeff L. Hubbard
By Jeff L. Hubbard

New product lines. A big office move. New market opportunities. These are bold steps that require expanding production or distribution capacity, renovating or buying a facility, upgrading equipment or even buying another business. They also require money, which growing businesses may not have — yet.

When it comes to financing options for growing businesses, there are a lot of myths and misconceptions. Here are three common ones:

1. Small and mid-sized businesses are limited to an off-the-shelf approach to their banking needs.

2. The most flexible, customized financing solutions are available only to the largest companies.

3. Small Business Administration (SBA) loans are available only to the smallest companies.

The reality is, there are many more ways to finance growth than most business owners realize.

The following are some common myths about financing a business in growth mode — along with the facts that tell a different, cash-flow friendly story.

My business has outgrown SBA loans

The SBA finances businesses with a net worth below $15 million and an average net income below $5 million. Considering this range and the fact that SBA loans can go up to $12 million, today's SBA product is fully equipped to provide financing to a wide range of businesses, from startups to large middle-market companies.

Even after a business receives their first SBA loan, there is still additional support the SBA can provide. For example, there are scenarios where a business will receive multiple rounds of SBA financing over time. Currently, the SBA has robust loan programs for working capital, real estate, balance sheet refinances, exporting, equipment, business acquisitions and partner buyouts.

My company’s assets cannot help me secure financing

Many business owners assume that only larger businesses can use their company's assets as collateral for a loan or line of credit. But collateral doesn't have to mean a building. While many loans are backed by hard assets, such as real estate or production equipment, those are not the only forms of collateral for bank financing.

So, what are the other options?

Often, growing businesses assume receivables are simply future revenues — but from a bank's perspective, receivables are just as valuable as inventory, equipment, owned facilities and other tangible assets. You may qualify for a loan or line of credit that includes your receivables as collateral. Receivables-backed financing is an affordable way to increase working capital and fuel growth, and the amount of credit available can grow right along with your business. Or, your business may qualify for a line of credit based on a combination of your receivables, inventory and equipment, tailored for your company's distinct growth plan.

I do not have time, money or patience to automate my accounts payable process

Many business owners believe maintaining manual processes for handling invoices and payments is easier and less costly. This is especially true for business leaders facing never-ending demands on their time and resources, who fear that the process to automate accounts payable will inevitably detract from more important, revenue-producing activities.

In actuality, failing to automate accounts payable is costly. Manually processing an invoice from receipt to payment can cost as much as $20, versus $4 for automated processing in high-volume businesses where there are thousands of invoices.

“Greening” the business is good for the environment but not for company finances

Many businesses are building environmental sustainability into their operations, whether to address company values, meet customer demands or satisfy government regulations. It's often assumed that these “green” initiatives will not necessarily translate into direct financial benefits for the company.

Here are the “green” facts: Tapping into federal, state or local incentives and financing options can actually improve cash flow and allow the company to fund more credit for growth.

In Connecticut, small businesses can save energy and money through Energize Connecticut's Small Business Energy Advantage program, where technicians conduct a no-cost energy audit of your business and propose custom recommendations for energy improvements. If you decide to upgrade your equipment to more energy-efficient models, there are financial incentives for up to 50 percent of the cost, as well as zero-interest and low-cost financing options payable on your monthly electric bill, so you only have one monthly payment.

Businesses should also take a look at Connecticut Green Bank's C-PACE program, which provides long-term financing for qualifying clean-energy upgrades through placing a voluntary assessment on their property tax bill.

Jeff Hubbard is president of KeyBank's Connecticut and Western Massachusetts Market.

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