Business Financing Services

Financing Uses for Business

Why do companies need financing?

There are many reasons why companies require financing for their business. Some of the more prominent are:

1. New Business/Start Up

When an owner starts a new business, he'll invest his time and money to get it started. At some point, he may not be able to invest additional funds and would prefer not to sell capital in the company to third parties. Providing he can qualify his company for a loan, debt financing is the most logical alternative.

2. Acquisition

An entrepreneur may decide to buy an existing business rather than start one of his own. He will most likely be required to invest some of his own money to do this but would look to finance a portion of the purchase price through debt financing in order to avoid giving up an ownership stake.

3. Going concern that wants to expand

Existing companies are often on the look out for potential acquisitions to expand their business and/or to eliminate competition. In some cases, they are able to use the assets of the company purchased to secure a loan. This is known as a leveraged buyout.

4. Current Lender Fatigue

This is one of the more common reasons facing small to medium sized businesses today. A company's current lender may be uncomfortable with the Bank's position on the loan, i.e. the risk of the loan going bad is too great relative to the return the Bank is generating on the loan. Rather than work with the customer, they will ask them to find another lender. If the customer is slow in obtaining alternative financing, the Bank may transfer the loan to its "Special Loans" division. In more severe cases, the Bank may demand immediate repayment of the loan.

Where do most companies go when they need financing?

Business owners often look first to the bank that handles their personal finances (such as their home mortgage) when they require business financing. Or they may be referred to another bank by a friend or associate. But if they're turned down, many business owners do not know what the alternatives are. In many instances, they would have qualified had it not been for a poor presentation by the owner to the lender or the documentation to support the loan was inadequate or unprofessional.

What happens when they're turned down?

Quite often, owners end up putting more of their own money into the company or end up selling equity stakes to third parties in order to finance their business. This is rarely the avenue of choice but ends up being the only alternative in many cases.

Aries Advisory Group can help you avoid this situation. Click here to see how we can help you obtain the type of financing you need, tuned to your specific needs.