Author: allison

With Q1 behind us and Q2 well underway, it’s time for a check-in with the state of commercial real estate so far this year. While there are some definite national trends, conditions vary from region to region with some regions bucking those trends. Understanding the underlying causes can help you determine where to find pockets of opportunity.

There’s still potential for the Fed to drop rates in the next two quarters or, at least, keep from hiking them. That could signal a round of refinancing for the massive number of CRE loans coming due this year. However, some have predicted high default rates and pressure on banks, which affects new loan availability.

So, without further ado, let’s take a look at what’s hot and what’s not in CRE right now. Then, we’ll dive into some considerations when it comes time to find a lender. Whether you’re ready to make investments or want to reposition your current holdings, keep reading to find out where your best bets could lay.

Hot: Industrial

The best-performing CRE sector by far is industrial, still riding the boom from lockdown e-commerce. The uptick in onshoring is ensuring that demand for warehouse properties remains high. International political concerns have encouraged retailers to keep products close to home and avoid potential supply chain issues.

Industrial is a great choice this year for property investors looking to onboard new properties or build CRE. Look to lenders like the SBA for funding as administration caps keep interest rates from reaching skyscraper heights. A variable rate option will drop your rate automatically in the event the Fed decides to lower the Prime Rate later this year.

Hot: Hotel

Hotels bounced back well after the release of travel restrictions and are holding steady as consumers continue to spend. Most of that stability is due to incoming international visitors and corporate travel. However, midrange hotels face pressure from short-term rental options like Vrbo and Airbnb. Political issues in some areas of the country have driven travelers elsewhere.

The hotels positioned to do well in 2024 are the luxury resorts and high leisure appeal destinations. Properties near major attractions like Disney World are likely to stay strong, even for class B and C holdings. Now could be the right time to upgrade hotel properties, depending on location. Asset-based loans allow for ARV estimations, which can supply capital for investments plus renovations.

Still Warm: Retail

The trends in retail from 2023 have continued into this year with little change. The sector continues to pivot to emphasize e-commerce, and those companies with the flexibility to do so are surviving. Smaller retailers are doing better in light of an increased demand for boutique experiences and an increase in small retail space availability. Big retailers tied to malls, however, aren’t winning 2024 so far.

Retail in some areas will be impacted by the election later this year, so watch for fluctuations in consumer confidence and spending. For retail properties, talk to your broker about acquisition loans. Acquisition loans have the benefit of shorter terms, so you’ll be free of payment obligations before there’s a big change in rates.

Still Warm: Multifamily

Multifamily, overall, isn’t doing poorly, but success in this sector is highly influenced by location. The current conditions in the housing market are, for the most part, driving consumers toward rentals. Job rates greatly affect multifamily properties since renters have more flexibility to migrate to better employment areas than homeowners.

The multifamily industry must strike the right balance between vacancy and demand, and with just under a million units entering the market this year, they won’t be absorbed as readily. Economists are predicting below-average growth but not much below 2023 levels. Southern suburbia will likely see the most positive growth this year. FHA loans are your best bet for financing multifamily property. Working with a broker will make the sometimes lengthy process of getting approved much smoother, but the sooner you apply, the better.

Not So Hot: Office

Falling asset values, higher interest rates, and plummeting demand make for a gloomy outlook for office properties. This downturn is especially prominent in cities with a strong focus on tech since many workers have transitioned to home office work. Offices with high-security demands such as healthcare, banking, and research tend to have lower vacancy rates.

There’s still opportunity within office real estate if you know where to look. Smaller, higher-class properties are weathering the storm much better than class B and C spaces. Try looking at private loans if you’re interested in funding an office purchase. Lenders specializing in office loans may be able to offer deals you won’t find at the bank. Your broker can help you connect, which brings us to our final update for this article.

Finding A Lender

The so-called “extend and pretend” loan strategies that have postponed maturities, are not a sustainable option, perhaps even contributing to a future economic disaster. Nearly one trillion dollars in bank loans will come due this year, and a wave of delinquencies is poised to hit banks hard. Since banks hold more than half of the nation’s CRE loans, this is a major concern for investors.

While most of the country’s large banks will be able to survive the storm, smaller banks will feel the impact. This means, that if you’re looking to invest in office properties with a small bank CRE loan…you might want to re-evaluate your strategy. On the other hand, loans from government-backed lenders and life insurance lenders appear to be where opportunities lie if you qualify.

It would be nice to say there’s one solid strategy to guarantee success, but life is rarely so simple. Despite some interesting national trends, it’s best to evaluate the municipal level to get a real sense of the best investment strategies in the local market. The ideal lender for your project is out there, waiting for a connection. Our team is ready to support you by sourcing the best CRE funding for your business venture.

There’s no official word on who coined the term, “The bigger they are, the harder they fall,” but it certainly seems to apply to “unicorn” businesses as of late. These privately owned businesses earn the classification “unicorn” when they breach the $1B valuation mark. But many venture-backed enterprises lost upwards of 50% of their value over the past few years, knocking several of them out of “unicorn” status.

While the losses can be a blow to the egos of billionaires, the market shift has caused ripples that stretch beyond the private bank accounts of the uber-rich. Many unicorns have implemented massive layoffs, attempting to delay capital depletion. Shareholders who feel the company is on the downswing will take their money elsewhere. Depending on their personal ties to the company, venture capital investors are beating a hasty exit, albeit at lower values than they had hoped.

Unless you’re a multi-billionaire, you might be asking yourself what this has to do with your business. The short answer is that reliance on inbound equity capital can get you caught in the ripples of unicorn failures. Don’t count on venture capital investors to provide most of your funding, and it is likely that acquisitions will slow down and that exits will be depreciated for the foreseeable future. It’s time to reconfigure and focus on growth from performance and sales. For many businesses, that means placing new emphasis on cash flow.

Cash Flow 101

Show us a business with poor cash flow, and we’ll show you a business in a lot of trouble. One of the most critical functions of your management team is creating cash flow statements that accurately describe inflows and outflows of liquid capital. Some experts advise having six months to a year of cash flow on hand at all times. Without a cash flow assessment, it’s nearly impossible to determine your liquidity, flexibility, and overall financial performance.

For new businesses, it’s perfectly normal to have negative cash flow, but this condition is ultimately unsustainable. It’s also important not to confuse cash flow with profits, which aren’t the same. A business can have negative cash flow over a certain period and still see profits over the course of a year, or visa versa.

Over too long a period, having negative cash flow will sink a business of any size. It’s one of the most common causes of business failure. Without adequate cash flow, your business can’t cover expenses. A cash flow shortfall means you can’t pay staff, manage debt, or handle emergencies. It also means the business will close its doors permanently if it can’t address the problem.

Improving Cash Flow

Now that we’ve addressed the potential consequences of negative cash flow, let’s work on some solutions. Here are a few ways to address the problem:

• Adjust your receivables: Offer incentives for customers to pay early or change due dates.
• Evaluate personnel: Invest in retraining rather than rehiring and eliminate redundancies.
• Reduce outflow: Discover places to cut your expenses, whether that means limiting operating hours, changing suppliers, or downsizing your workspace.
• Work with a broker to find appropriate cash flow financing options.

Cash Flow Financing

If your business is facing cash flow issues, it’s not alone. That’s why there are so many financing options out there. However, these solutions are not one-size-fits-all, which is why it’s a good idea to meet with a broker to get a custom fit. For example, factoring can be a great way to get ahead on expenses, but it doesn’t work for businesses without accounts receivable. If your cash flow woes have affected your credit score, an asset-based line of credit may work best. Here are a few more ideas:

• Business Line of Credit: A line of credit lets you borrow what you want when you want, as long as you don’t exceed your credit limit. Credit limits depend on your credit score (unsecured account) or asset value (secured account). Lines with no balance don’t incur interest charges, which makes them great for emergencies.
• Factoring: Factoring gives you a jump on revenue from invoices, purchase orders, and contracts. Sell these assets to a factor to get immediate cash, then let the factor do the collecting. Factoring fees are typically less than 5%.
• Private Loans: Private loans allow companies to leverage the value of their long-term assets without liquidation. Because the assets provide lender security, lenders can approve private loans faster and for higher amounts than an average traditional bank loan. Private loans are short-term, making them ideal for companies expecting a windfall.
• SBA 7a Loans: SBA loans are for companies that have struggled to obtain financing. The SBA 7a loan can provide working capital, or a combination of real estate and working capital, and requires a lower credit score to qualify than most bank loans.

Outside of working capital options, implementing strategies like refinancing, credit repair, restructuring, and diversifying investments can also positively impact cash flow. Don’t forget to explore these options with your broker.

Keeping an eye on your business’s cash flow is imperative, but negative cash flow doesn’t have to mean your business is doomed. Take action before cash flow becomes a problem to improve your chances of survival. With the strategies above, you can focus on sales and performance to drive your growth. And if you’re looking for help in evaluating which financing strategy would work best to stabilize your cash flow, our team is always here for you.

Factoring as a way to grow businesses may be getting a lot of attention these days, but it’s not a new concept. History tells us that the practice of selling accounts receivable for a quick influx of capital came to our shores with the Mayflower. However, it’s been a popular form of financing for centuries all over the world. It’s helped merchants expand, explore, and succeed through history to the present day partly because it’s such a flexible option. This flexibility allows businesses to adapt it to their needs.

The modern form of factoring developed in the textile and fashion industries. At the time, banking restrictions didn’t allow companies access to the amount of capital they needed to keep production on pace with the fashion seasons. Because of its long sales cycle and changing consumer demand, textile companies must continue to produce new products, even before they see a return on the prior season. In the meantime, any unexpected expenses could impact the business or even shut it down. To ensure cash flow is consistent, businesses in this industry rely on factoring.

That’s just one historical example of how factoring can be a lifeline for small businesses or a continuously beneficial part of their everyday operations. The examples below illustrate the diversity of factoring and may spark some ideas for how to use factoring in your own business. To explore further, don’t forget to reach out to a qualified broker who can show you how to tailor factoring to your individual needs.

Shipping and Logistics

Although it can seem like goods arrive by magic, the truth is a lot of effort goes into making sure what you ordered yesterday shows up on your doorstep today. Shipping and logistics companies often don’t get paid until after delivery. When high volumes or long distances are involved, the company has to pay their drivers, maintain their vehicles, and cover the cost of insurance with the capital they have on hand.

For mega-corporations, this delay doesn’t cause a problem because they have a huge client base and a massive fleet of trucks at their disposal. For a small business, however, it’s a different story. To boost working capital between payments, many shipping companies rely on factoring. Factoring means they don’t have to wait to process accounts receivable before they can send their trucks out to make deliveries. Without the cash flow from factoring, they could easily be overshadowed by their competition.

Healthcare Providers

Doctors, dentists, clinics, and hospitals must navigate the long and often convoluted process of insurance billing. This process is so complicated that there’s an entire profession dedicated to doing just that. Medical billing and coding specialists learn how to work with insurance companies to invoice the right services at the right time. Even so, healthcare providers must wait for their billables to make their way through long insurance timelines.

As with the previous examples, factoring can increase cash flow to cover the business’s expenses while they wait for the insurance companies to pay. Factoring has the added benefit of taking accounts receivable tasks off their plate, making accounting easier. Many factoring companies specialize in healthcare billing, so they understand the unique needs of this industry.

Construction

You might not imagine the fashion industry and construction would have anything in common, but both have to deal with exceptionally long payment cycles. It’s not uncommon for a construction firm to wait 120 days for payment on a completed job. That’s an entire quarter! How does a small construction company bring in materials, supplies, and labor in time for the next job? You guessed it – factoring.

Construction financing presents unique challenges not seen in other industries. These challenges have given rise to factoring firms that specialize in servicing this business sector. They accelerate cash flow for contractors, allowing them to take on jobs they would otherwise be unable to finance. While it’s not easy to adjust a construction loan, factoring is fast, convenient, and adapts with you as you take on jobs.

Recruitment Agencies

Recruitment industries discover, screen, and place talent for tasks as diverse as data entry, medical diagnostics, IT, and environmental testing. While their goal is to make an ideal client-talent match, companies and workers can end a contract at any time. That puts a kink in the agency’s revenue stream until they can place another job candidate. Factoring covers that gap when the agency leverages its accounts payable to boost its cash flow.

Job board fees, background checks, recruiter salaries, and agency fees mean a recruitment agency can end up paying thousands of dollars upfront before making a job placement. In a competitive job market, they keep pace by grabbing talent before another agency can. But it’s hard to attract new talent fast when relying solely on receivables. If you work with recruitment, do your team a favor and talk to a broker about factoring.

Talk With a Broker Today

These are just a few examples of industries where factoring can be instrumental for growth. If some of these cases resonate with you and your business, talk to a broker about turning your unpaid invoices, purchase orders, and contracts into cash flow. You’ll learn how versatile this financing solution can be without the need to enter a long-term commitment. Contact our team today to see if factoring is a fit for your business.

Believe it or not, we’re already heading into the second quarter of 2024. Financial performance in the first quarter is encouraging as the year got off to a strong start. While we didn’t see rate cuts from the Fed in the first few months, tech stocks gained in anticipation of an AI boom, leading the market to a nearly 30% increase over last year. For now, at least, it looks like the economy has dodged the predicted recession.

As we go into the next quarter, look to invest in efficiency, quality, and product/service evolution. Supply chain changes bring efficiency benefits, quality is a big driver of business valuation right now, and leading businesses are pivoting toward service-based models and enhanced product design. Lean into qualitative investing over quantitative with brands that score highly in social impact, customer loyalty, brand recognition, and proprietary practices.

Read on for more details and financing vehicle recommendations. Be sure to talk to your broker about how your business can use these ideas to see maximum gains in 2024.

Quality Valuation

Business valuation is important both when you’re looking to acquire a new business for your portfolio and when you’re hoping to gain investors for your existing business. In 2024, both investors and lenders are looking for quality over quantity. That means there is a shift in focus, especially given drops in valuation to some of the so-called “unicorns.”

While businesses still need a stable financial foundation and capital structure, consistent performance, and healthy cash flow, today’s investors want management competence, brand recognition, and growth potential as well. Big exits are down, so businesses need to focus on fundamentals and invest in things that will develop cash flow and provide long-term value. Businesses that tick all of these boxes will be seen as target for investments, especially for those with a three-to-five-year positive outlook.

For businesses looking to expand their acquisitions portfolio, there are many reliable financial vehicles to choose form. One of these is SBA loans, especially since they carry the advantages of capped and variable rates. An SBA 7a loan will give you up to a 10-year term for business acquisitions, plus some working capital to handle incidentals. These loans have super low minimums, at 10% down, and the interest rates will automatically drop when the Fed cuts rates later this year.

Evolution

The big three industries expected to see maximum growth this year are healthcare, utilities, and AI, but take a look further up the supply chain if you want to focus your investments wisely. This means that, instead of investing in hospitals and clinics, a smarter move would be to look at medical device manufacturers, PPE suppliers, and pharmaceuticals.

Out of the three top growth industries, utilities will likely be the most affected by November’s election. As each party has different priorities when it comes to revamping the country’s energy supply, the winning party can implement regulations and incentives that directly impact the energy sector in various ways. Significant changes to utility infrastructure will be expensive, a cost companies are likely to pass on to consumers. The more capital investment in infrastructure, the more utilities profit.

AI may seem like a trend, but it’s not going to disappear. While it’s been around in various forms for decades, there’s a clear surge in public interest this year. Many businesses are tapping into AI capabilities to grow their service options and evolve their production lines. Even if keeping an AI on board at your company doesn’t fit your business model, you can still look at accessing one-time optimization services and streamlining your hiring process with AI.

This isn’t the year to empty your company’s savings account, even if it is to tap into tech, healthcare, or utility industry growth. For a working capital boost that saves you from pulling capital out of long-term investments, talk to your broker about a line of credit. A secured line of credit lets you leverage your assets for lower interest rates and a higher credit limit. Use funds for whatever your business needs and only pay interest if you have a balance that carries over.

Onshoring Creates CRE Opportunities

To mitigate supply chain concerns highlighted by the pandemic, more and more companies are looking at onshoring and nearshoring. With increased instability overseas, it’s more important that manufacturers keep operations close to home where they won’t be impacted by embargoes, blockades, and opportunistic pirates. Being caught short of critical supply is an experience most don’t want to repeat.

Onshoring also appeals to companies looking to increase their sustainability and transparency in a world where social responsibility is increasingly scrutinized and valued. One upside for investors is that onshoring increases demand for warehouse real estate. This creates opportunities in the industrial CRE space for investors who want to capitalize on that demand.

To find the right financial vehicle to carry your next CRE investment, your broker will likely point out the value of asset-based loans. Rather than getting locked into a long-term traditional mortgage, asset-based loans are short-term loans that let you close quickly so you can start earning right away. The rental income from the new warehouse property can pay down the loan quickly, so you can keep more of the profits later. Plus, asset-based loans can help you with working capital for renovations and marketing.

There’s room in Q2 this year for smart investment moves and enhancements that will make you more attractive to potential investors, using what we’ve learned from the first quarter. Look for qualitative opportunities to improve your business.

Most importantly, talk to your broker about financing the emerging opportunities in your industry. Talk with our team today.

If you’ve been watching the news, you already know that interest rates have started to level out, but that while reductions in interest rates are pending, businesses still need to access capital in order to serve clients. Today’s rates don’t have to scare business owners into holding off on financing to move their businesses ahead. The good news is that there’s an easy solution that gives businesses access to the working capital they need now without being stuck in a high-interest rate loan as rates moderate.

As economists predict the Fed will lower rates in the second quarter of this year, it’s a great time to take advantage of a variable-rate loan such as a line of credit. Variable rate loans change based on the Prime Rate. So, when it goes down, so does the loan’s interest rate. That means borrowing now to take care of needs like utilities and payroll doesn’t mean being trapped in an expensive loan.

There’s no need to refinance into a cheaper option later on since the rate automatically changes. Plus, if there’s no balance on the account, there are no interest charges, no matter what the current rate might be. That makes lines of credit a good choice for working funds to purchase supplies and materials or to respond quickly to unanticipated growth opportunities.

Line of Credit Basics

A line of credit is a revolving loan that replenishes with each payment back into the account. Since many business loans have spending restrictions, lines of credit are great options for flexibility. That’s because they can be applied toward almost any business expense, not just equipment or property. Most borrowers use a line of credit to handle working capital, but there are also specialized options that help manage real estate and other expenses if that’s what the business needs.

To get even lower interest rates on a line of credit, the line can be secured with business assets. When it comes to lines of credit, borrowers have two main options: secured and unsecured. A secured line uses the business’s assets to secure the loan, such as real estate, equipment, inventory, or shares. Because securing the loan lowers the risk for lenders, they can offer reduced rates.

An unsecured line relies on the borrower’s credit history to reduce risk. Therefore, a secured line can be easier for a business to obtain if it’s new or has had trouble with financing in the past. Going with the secured route, using collateral assets, also increases the borrower’s credit limit on a line of credit, giving them more power to manage their expenses.

Lines of Credit vs. Credit Cards

Lines of Credit and credit cards are both what’s known as revolving credit. That means when a payment is made into the account, it increases the borrower’s available credit up to the credit limit. On a standard term loan, for example, payments to the loan only reduce the interest and premiums, but don’t allow the borrower to borrow from the loan again.

The difference between lines of credit and credit cards is primarily the cost. Most credit cards are unsecured debt, which doesn’t give the borrower as much capital opportunity as an asset-secured loan. Secured lines of credit, however, have higher borrowing limits and lower interest rates than most business credit cards. Credit cards, in most cases, also have fixed rates, so the associated costs don’t go down when the Prime Rate drops.

Another important difference is that a credit cards doesn’t allow some categories of business expenses like utilities and payroll. To get cash from the account, rates are much higher than the card’s standard rate for purchases. A line of credit, on the other hand, allows a draw on the account directly to the borrower’s bank, so the funds can be applied to any expense.

How to Use a Line of Credit

You already know a line of credit is flexible, but it might help to have a few specific examples of how to use one. Here are just some of the scenarios where a variable rate line of credit comes in handy. Think about how you’d handle each one with and without a line to see if one is right for you.

ACCEPTING LARGER CONTRACTS: A contractor is looking to bid on the city’s newest construction project, which presents an opportunity to bring in several years’ worth of revenue. But, before they get started working on it, they’ll need to supplement their work crew with new hires. The contractor can advertise, recruit, and onboard the labor they need quickly, without waiting for the city to pay for the first round of construction, using a line of credit. When the project ramps up, payments can go back into the credit line account to be used for the next bid.

SEASONAL FLUCTUATIONS: A ski resort is highly dependent on regional weather patterns, especially as seasons change. It can manufacture snow, but not through the whole year. Summer activities like hiking don’t have the same draw as skiing, so, the business sees a revenue gap in the summer months. To cover maintenance, property improvements, and to prepare for the next season, the resort uses a line of credit to manage payroll for its off-season staff, maintenance costs, and rental equipment. When the snow falls again, the influx of skiers allows the business to pay back into its credit line, freeing up the balance for the next summer cycle.

FINANCIAL SAFETY NET: A local mom and pop shop aquires a line of credit as a buffering tool to address potential fluctuations in business. One time, they were notified by a manufacturer of a discontinued product line.The discontinued products were being sold at a steep discount, and the store owner knew that they could move the goods over time. They drew on the line of credit to place a larger order than they could otherwise afford. A few months later, during the holiday season, the store sold the products for significant profit and easily repaid the line. The following year, the store experienced an unfortunate theft. While waiting for the insurance company to process the claim, the store owners again pulled on their line of credit. These funds enabled them to rapidly restock inventory and reopen for business. Once the insurance claim funded, the owners repaid the balance on their line but kept it open in case of future needs.

What will your business accomplish with a line of credit? Take advantage of a variable credit line today, before interest rates drop and the competition intensifies. To discover which one matches your company’s industry, assets, and goals, speak with a qualified broker. They’ll help tailor the options to suit your unique needs and make sure you get the lowest rates on the market. Plus, get advice on how to manage debt, boost your credit, and more.

Gone are the days when a small business owner could walk down to their local bank, have a lovely chat with their banker, and walk away with a loan to keep their business afloat. For many of us, those days never existed. The banks we’re familiar with are large multinational corporations highly regulated (due to the history of bailouts) by the government. They are subject to changes in nationwide policy without the flexibility to pivot quickly in response to demand. But they’re still the first option many people think of when it’s time to seek a loan.

Banks must make adjustments in response to economic conditions, just like other financial institutions. When the economy enters a recession, banks necessarily have to pull back, shrinking the availability of traditional loans. They become more selective, approving only those borrowers with top credit scores and securable assets. In many cases, startups, small businesses and fast growing businesses of all sizes are left out of the running.

That doesn’t mean there’s no longer a demand for those loans. It means new lenders come in to fill the lending gap left by traditional lenders. These new lenders are called alternative lenders or “alt lenders,” and they’re the source of billions of dollars in financing annually. The alternative lending sector is only expected to expand in the future, offering viable options to professionals all over the globe.

What are Alternative Lenders?

Strictly speaking, alternative lenders are non-banking institutions. However, the big players in this sector are private market investors. Public pension funds, private investment funds, and private pension funds hold the most private credit assets. Alternative loans can also come from credit unions, peer-to-peer lenders, microlenders, crowdfunding, and FinTechs that loan to private companies. Historically, alternative lenders are more maneuverable than banks because they are lending their own money, not federally backed loans, and they utilize the latest technology available to facilitate the loan process.

Alternative lenders can provide a broad range of financing services like factoring, business credit cards, and ACH loans.

Who Uses Alternative Lenders?

Alternative financing is great for borrowers with non-traditional income such as gig workers and freelancers, but also for businesses that don’t have the credit history to qualify for bank loans. That can mean startups, businesses with sudden growth, past bankruptcies, and those repositioning after the pandemic and interest rate changes.

Alternative lenders use more than just credit reports to underwrite loans. They can look at utility payments, community relationships, and hard assets. Because they use the latest technologies, they can access more types of information faster than traditional lenders. Many alt lenders process applications in minutes, all through their online platforms.

What are Alternative Loans?

In broad strokes, alternative loans are short-term modes of business financing that often rely on assets for security. They typically come with a higher interest rate than a traditional loan. However, since the terms are short, it may mean the business pays less in total interest over the life of the loan.

Factoring is one type of alternative loan that is essentially a sale of accounting assets like invoices and purchase orders. The alternative lender gives the company an advance on the value of these assets so the company doesn’t have to wait around for its customers to remit payment. The customers then pay the factoring firm directly, and the company can bypass this part of their accounting process.

Asset-based loans can be used to buy equipment without qualifying for a credit-based loan. In this case, the asset being purchased – the equipment – acts as security for the loan. The lender mitigates their risk by gaining the right to claim the equipment if the borrower fails to pay back the loan. The borrower can onboard the necessary equipment to advance their business without the capital to fund an outright purchase, regardless of how long the company has been in business.

Those are just a few examples of traditional loan alternatives that are easy to qualify for and address borrowers’ needs by using flexibility and advanced technology. It pays for small business owners to seek out these products when they have capital needs that don’t fit into a traditional paradigm.

How to Get Alternative Loans

Because alternative lenders can be found serving niche communities, they aren’t always easy to discover. Many alt lenders are exclusively online, and it can be hard to tease out the best deals or compare across lenders. Transparency is a point of pride for many alt lenders, who recognize it strengthens the lending landscape. However, there are still a few who aren’t as reliable as they should be.

Businesses seeking P2P financing, microloans, marketplace loans, and similar alternatives have a significant advantage when they work with a broker. Brokers can see hidden opportunities for businesses to capitalize on their assets and take advantage of specialized lenders. They can also act as the borrower’s advocate, negotiating flexible terms that fit the market today, not what the market looked like yesterday.

Because alternative lenders have fewer restrictions than banks, they have more leeway when underwriting. That means there’s room for the borrower to negotiate for a better deal. A broker facilitates this process for small businesses so they don’t pay more than they need to for financing.

While working with a broker is almost always a good idea (even for a bank loan), partnering with one can help business owners identify opportunities for growth in a challenging market when rising interest rates create a gap in traditional lending. Talk with us today and we will help you craft a financing plan based on your business goals and objectives.

When bridge financing comes up in conversation, many business owners and managers think of short-term real estate funding. Bridge loans are popular with CRE investors because they support a quick close on property while awaiting traditional financing to come through. While that is a powerful tool for business owners and investors in hot markets and for fix-and-flip developers looking for redevelopment funding, bridge financing is more flexible than you might think.

Bridge loans can cover any type of funding gap a business is experiencing. This article will touch on some of the many ways bridge financing works as a solution for small businesses operating in today’s economy.

If you’re unfamiliar with the term “bridge financing,” here’s a quick primer. Bridge financing is a short-term financial solution that often comes from an investment bank or venture capital firm. It allows a business to solidify its short-term position until long-term funding is available. Bridge financing can be easily replaced with another loan or paid off when cash flow increases.

Although bridge financing may have higher interest rates than traditional loans, it can be approved quickly and paid down quickly. Terms max out at just a few years, which means borrowers aren’t paying interest for a decade or more. They’ll also get a credit boost when they pay off the loan. Plus, bridge financing is highly customizable and flexible. If you have a reliable broker, bridge financing can open a world of possibilities for your business.

Contractors

As a contractor, it’s common to deliver a job before the client has paid the full cost agreed upon in the purchase order or contract. The contractor has expended its capital on supplies, materials, and payroll and needs to recover those costs. For a small business, it may take that payment to fund the company’s outlay for the next job. The longer it waits, the more business it stands to lose.

With bridge financing, the contractor can continue to accept new jobs while they await payments. The bridge financing pays for equipment, materials, and labor to eliminate any pauses in workflow and cash flow. The bridge loan can be satisfied when the payments come in from completed jobs. Contractors aren’t the only ones who can benefit from bridge financing. Any time a business has a gap in funds between conducting work and receiving payments, a bridge loan can fill the gap.

Hospitality

To remain competitive, hospitality-focused properties like hotels and resorts, business owners frequently are required to complete a Property Improvement Plans or PIP to maintain the “flag” or brand affiliation with their hotel. These provide the funding needed to increase the property’s asset value with improvements like bringing features into compliance with ADA laws, installing sustainability measures, and modernizing to capitalize on new security tech.

The COVID pandemic hit the hospitality industry hard. In recognition of this hardship, many leading brands postponed property improvement requirements. Now, brands are expecting owners and operators to complete the upgrades to maintain their hotel affiliation, but with interest rate changes, many hoteliers face challenges being financed. A bridge loan provides the funds necessary to complete upgrades while owners await decreases in interest rates and a more favorable long-term financing horizon. This strategy offers an extension of sorts on improvement financing.

Innovation

Taking new product and service developments from idea to implementation represents many hours of hard work and dedicated resources. After launch and marketing, there is inevitably a lull before that hard work pays off in terms of cash flow. During that gap in the launch cycle, short-term bridge funding becomes an indispensable business tool.

The company’s innovative work could make it a household name, but that won’t happen if it can’t cover operational costs in the meantime. Until it can reap the rewards of all its hard work, the company can use a bridge loan to keep operations running smoothly.

Going Public

Businesses may seek funding from venture capitalists when they want equity financing instead of debt financing. In this scenario, the business is preparing to go public and offer its shares on the market. Bridge funding could be utilized to complete a merger, or finish a phase of product or service development prior to offer.

Bridge funding can be beneficial if the outcomes are worth greater than the cost of money, but when poorly handled, bridge funding can overly dilute the value of the public offer, making investors hesitant. For that reason, bridge funding is often applied sparingly and between rounds of funding prior to public offering. When applied correctly, bridge funding allows venture-backed businesses to surge ahead, allowing them to quickly capture market share.

Refinancing

Last year, the Federal Reserve hiked up the Prime Rate, which, in turn, affects loan interest rates. Companies that sourced CRE loans during the heady years of 3% interest rates are seeing those loans come due now. For those looking to refinance those loans, interest rates on new term financing won’t be as favorable as in the past. It could be in their best interest to hold off on refinancing until rates come back down.

For this short-term gap, bridge loans offer a viable solution. The business can use the bridge loan to satisfy its CRE loan. Then, they can hold the bridge loan until rates drop on new term financing. Once the company transitions to the new loan, the bridge loan has served its purpose.

If you’re intrigued by what bridge loans can offer, there’s no one in a better position to help you discover if a bridge loan is right for you than a broker. Since bridge loans are so flexible, your broker can customize it until you’re satisfied it fits with your planning. It’s always a good idea to consult with a broker before making the move to refinancing, gap financing, or investment financing. Reach out to our team as you consider business financing. Let’s see what kind of financing we can source for you.