Commercial credit - what does it take to get it & what types of options exist?

Talk to your banker about an unsecured line of credit... they are opening up as the economy improves. If they aren't ready to work with you look for a local CDFI. These nonprofit alternative finance agencies are in the business of bridging companies over to the bank... you will likely need an SBA guarantee with them due to the lack of collateral. Also...Try a community bank that specializes in business lending. Good luck!

Community bank should be able to structure a working capital line with advances tied to A/R. Personal assets may be taken as collateral as well if you and/or other partners are open to it.

it is certainly possible to borrow against your receivables with either a bank or 3rd party lender... most important will be to show solid controls on billing (because if it isn't accurate and timely they can't assume it will be collected) and that your collections are on time

I can give you some specifics but don't think I am supposed to on this board... you can PM me for more details

If the bank declines or qualification for SBA is an issue regarding the difficulty and time necessary to complete, term loans (unsecured and secured) along with credit lines are available for profitable, revenue producing companies from reputable private firms. Annual interest rates will range from 10% to 20% for secured term loans and 20% to 30% for unsecured term loans (from the better lenders). Asset based credit lines and portfolio based credit lines are much less expensive but must be backed with at least 2X in marketable collateral. Care must be taken when weighing options as all private lenders are not created equal and there are some who would take advantage of your situation rather than find an equitable solution. I would recommend staying away from the higher priced options of MCA and some factors as annualized rates can be as high as 80%.

From the limited description of your situation, congratulations - you have jumped a few of the lending hurdles (time in business, revenue and profitability). There definitely should be some viable options out there (e.g. factoring and bank line of credit, using your accounts receivable as your primary source collateral. If you have equity on your balance sheet that can help also to move into some term debt options, and possibly the SBA route, if warranted.

Factoring companies are the most expensive source of debt; expect to pay between 20-40% interest rates (or higher, if looking at on an annualized basis). However, I wouldn’t discount them altogether, as if you need money, they can fit a need. The key, as mentioned by others, is to find a reputable group and an agreement you can live with (read the fine print, as they typically try to lock you in for 6 months to a year with termination fees, etc.).

The next step is a “hybrid line of credit”, offered by some of the factoring type firms. Instead of directly buying invoices one by one, it acts like a bank line of credit tied to your receivables, but at a lower rate. Expect to be in the 15-25% range.

Once you “graduate” to a standard bank relationship you can get below 10%. If your balance sheet and business base is strong, then the rate obviously goes lower. However, with the standard bank lines, there also comes lots of covenants, so you have to be ready for such restrictions. Run your numbers and see how your working capital ratio looks. If you are consistently above 1.50, then you’ll have a much easier time with a bank.

I am a big fan of local / regional banks, as their lending practices are typically much friendlier to small business. The big boys (e.g. BofA, Chase, etc.) always talk nice to you, but are almost never interested in approving a loan unless you don’t need the money…

Always happy to give my insight on specific situations, in confidence to interested folks, just reach out via private message.