Having over 20 years’ experience arranging financing for industrial based SME’s (i.e. small & medium sized businesses), I am reminded yet again of how diversification is so important in all things business including debt.
Downside to Asset Based Financing from the Banks
Getting asset based financing from the bank at low interest rates may seem like an attractive option (if it’s available to you), but it can get ugly when the economy or your specific business has challenges. After working with a multitude of business owners, I can’t recall one of them who hasn’t had material challenges at some point, and most more than once.
These problems often become visible on the balance sheet and income statement and this is where the bankers go to look for beauty and the beast. If a business owner has too much bank exposure the bank effectively takes control of the business by limiting or cutting of credit lines when those hard times come.
Difficulty Getting a Loan from a Bank in Alberta
The raw cost (time, resources and team redeployment) of throwing the key man or woman into a contest with the bank is high, very high and extremely stressful. Unzip Alberta’s economy right now and there are countless business owners who are paralyzed because they can’t maneuver around their banks, the same banks who lined up to provide the financing when times were good. What then is the cost of stability, control and growth?
Financing Options Outside of the Banks
It’s simple, don’t hesitate to pay a little more on a pre-tax level for your debt and do it with non-bank sources. Asset based lenders and leasing companies offer non-callable debt, free of financial covenant tests while being very creative on structures.
Stability, control and growth, say these words to yourself a few times and the next time you decide to purchase or refinance assets ask yourself how much they mean to you. Calculate your risk.