Good Credit. Making money. Strong Business. Still turned down at the bank?
Most business owners find mystery in the process of acquiring financing for your business. One year everything goes smooth as silk. The next year the process feels cumbersome and difficult even though your good credit is still good. While the reasons for these wild swings in the experience of borrowing money are many, there is one that surprises most business owners when it’s too late: exposure limits.
Most lenders have a somewhat mythical, unexplained level of debt they are willing to carry with your company. Even though you may be able to easily afford the additional debt as a company, the lender pushes back from the table because they are “full”. While this feels very odd to most business owners, there is a very rational explanation.
Most lenders are under increasing pressure from regulators and other sources to ensure they can withstand the pressure of an economic downturn. If they over-invest, on a relative basis, with one company they may be taking too much risk from a portfolio management or regulatory perspective. Think of it as putting too many eggs in their basket. Because of this, they establish these “exposure limits” with any company so they don’t break any eggs. The problem is, most business owners only know of the exposure problems when the bank says “no more” and are not prepared for what to do next.
Knowing how lenders approach these issues, it is very important to diversify your sources of financing and not put all your eggs in the basket of any lender. You might use a bank for working capital, another bank for your real estate and another specialist lender for your equipment needs. But even within the equipment category, some businesses need such a volume of revenue producing equipment that diversifying a few sources even among the equipment lenders is important. Planning this diversification strategy can avoid times of capital constraint in economic uncertainty or “capping out” with an exposure limit.
Another option would be to work with a capital provider that offers multiple finance programs for commercial equipment. These lenders may have their own portfolio money, unique partnerships with funding sources and access to other specialty providers all in one phone call. A strong, experienced lender like this can help you with diversification and managing exposure without having to manage multiple relationships.
At Key Credit, we are an option that can help you manage diversification and exposure concerns for your business. With access to a wide variety of programs, our seasoned experts can help you plan for this strategy with competitive offerings while saving you a great deal of time and effort. If you would like to see how a finance partner can help you diversify your sources of lending, contact us today.