Wednesday, November 12, 2008

Alternative Finance for Companies in the Tough Economy

This guest blog post originally appeared on The Austin Startup Blog on November 11th. Corey Blahuta works with me at vcfo.

Today’s guest blogger is Corey Blahuta, the Austin Managing Director for vcfo, Inc. He can be reached at or (512)345-9441. For more information see:

My company, vcfo, hosted a great event last Thursday where a panel of experts discussed a variety of alternative financing strategies. It struck me as funny to call these “alternative strategies” as they are neither risqué nor new, they are just a bit different than the traditional path of an entrepreneur or CFO working exclusively with a commercial bank and setting up a line of credit. The panel represented a good cross section of the alternative or “transitional capital” landscape. The panel consisted of Meg Roberson from Gulf Coast Business Credit, Bryan Ballowe of King Trade Capital, Jim Rebello of Growth Capital Partners, LP, and Lou Manitzas of One Source Financial Corp, and the event was moderated by David Orlandella of Enhanced Capital Partners.

The alternative financing strategies represented by the panel included factoring; asset backed lending (leasing, etc); mezzanine financing; and purchase order financing. Each has its own merits and challenges. Some can be quite expensive relative to a traditional commercial bank line but they all represent themselves to be cheaper than equity and certainly more favorable than missing a key revenue opportunity. In a very simplistic model; you look to purchase order financing when you have a firm contract or order but need working capital to deliver on it; factoring can be key when you have delivered the goods and have quality receivables but the cash conversion cycle is long; asset backed lending is essential if your business requires heavy capital equipment investment; and mezzanine financing can be useful if you have a business that is cash flow positive but needs additional capital to fund your business plan or complete a buy-out.

In addition to discussing their respective businesses each panelist was asked to provide some perspectives on what they are seeing in the market. What follows is some of the highlights of that discussion.

Meg Roberson noted that she has seen companies with banking relationships that go back ten or more years not getting facilities renewed in the current environment.

Jim Rebello, advised that business owners and CFO’s should “mange to the covenants” present in existing lines as they don’t want to give their banks a reason to possibly rethink a facility.

Bryan Ballowe believes we are moving from a “crisis of confidence to a crisis of realization” as Wall Street pain has moved into the broader economy and he expects that trend to continue in 2009.

Lou Manitzas cautioned that even though the alternatives discussed were certainly more reasonable in the current environment than lending from traditional commercial banks, underwriting for all forms of capital are tightening, including those being discussed by the panelists.

Finally, all panelists noted that the demand for their products and services has increased dramatically in recent months and they expect that trend to continue into at least the early part of 2009.

If your company is concerned about your financing options, I suggest you begin now to research your alternatives. The experts mentioned here, as well as others, will gladly help educate your business on the different vehicles available to you in any economic climate.

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