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How To Find Financing When Your Bank Says 'No'

Businesses need money to operate. Ideally, that money is provided by the company's cash flow, but what happens when your bank says no. Check out these six steps for finding alternative financing options.

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Businesses need money to operate. Ideally, that money will be provided by the cash flow of the company. But there are a myriad of reasons the cash flow of the company may not be enough to support the company’s capital needs. Those reasons may be good circumstances such as rapid growth, acquisition opportunities, or capital expenditures to support an expanding product line. They may also be driven by unfortunate circumstances such as an unexpected slowdown, delays in customer payments, or a bank that stops renewing loans to companies in a certain industry. Whatever the reason for the financing need, there is usually a solution that can be found if the business owner knows their options and approaches the financing correctly.

Six Steps To Follow To Find Financing

As we will explain below, companies should take the following steps to secure the financing they need:


1. Prepare for the Request and Get Creative

One of the biggest mistakes we have seen business owners and their teams make when seeking financing is failing to prepare before requesting a loan. Business owners should make it easy for the lenders to analyze the business and make a lending decision.

Companies should put together a business plan and financial model showing the lenders exactly how the business will use the money, the rationale for the loan, the cleaned up historical financial statements (removing all non-recurring items from EBITDA), financial forecasts, and the cash flow generated by the business that will be used to repay the loan.

Sometimes, after preparing the first pass of the presentation and analysis it becomes apparent that the business can’t support the needed loan. At that point the team needs to look more creatively at their business to find ways to generate more cash.

For example, many private businesses we work with own their buildings and land. There may be quite a bit of equity tied up in that real estate that could be freed up for the business if the company enters into a sale-leaseback transaction with a third-party. Similarly, equipment could be sold and leased back. Excess equipment or inventory could be liquidated to raise capital. Before approaching the lender, business owners should try to figure out some creative options that could help them create liquidity so it easier for a lender to say “yes” to the loan request.

Waypoint Private Capital had the opportunity to get creative when helping a management team acquire a company. The team didn’t have enough equity in the acquisition to satisfy the lender, so we structured a sale-leaseback of the company’s manufacturing facility. This structure reduced the loan amount being sought and provided management with equity to contribute to the acquisition, thereby satisfying the requirements of the lender and allowing them to make the loan.

2. Start with the Company's Current Bank

Relationships are always helpful when seeking financing, so businesses should always try to work with their current bank to get the financing they need. The incumbent bank should understand the business and be able to quickly evaluate the information presented by the company and provide a quick answer to their request. The answer may not be a “yes” or “no”, but may be a counter proposal on the amount and structure of the loan they could make. Business owners should stay flexible and open to possible structures, but shouldn’t settle for a loan that doesn’t meet their needs.

3. Pursue Other Banks

If the company can’t secure a satisfactory loan with their current bank, they should cast a wider net and talk to a larger group of banks. We have learned over time and through conversations with hundreds of bankers, that every bank has different strategies, goals, biases, and people that impact how they evaluate each loan opportunity. Just because one bank says “no” to a loan request doesn’t mean that others won’t say “yes.”

Large banks will evaluate loans differently than small community banks and credit unions. Lenders and their credit committees that have had a bad experience in a certain industry will have a bias against any company in that industry, while other lenders may be aggressively looking for opportunities in that industry. The point is, no two lenders are the same. Cast a wide net so the company has better odds of finding a willing lender.

4. Consider SBA or USDA Loans

SBA and USDA B&I loans often get a bad rap because they are government sponsored programs that are highly regulated and often require borrowers to jump through a bunch of hoops to get their loans approved and funded. But if companies have the time and patience to get through the loan process, these can be great programs.

SBA loans, both the 7(a) and 504 loans, are meant to provide financing for borrowers who can’t get financing from non-government guaranteed sources. While the loans are limited in size ($5MM for a 7(a) and $5.5MM for a 504), and may be slightly more expensive, they have favorable structures with higher advance rates and longer amortizations than traditional bank loans, which helps increase the cash flow of borrowers.

USDA B&I loans are restricted to companies located in rural areas, but have loan amounts up to $25 million and amortization periods as long as 40 years. Banks and special lending groups underwrite the loans and receive guarantees from the SBA or USDA.

5. Pursue Alternative Financing Sources

While banks provide a compelling option for finding debt financing because of their lower rates, they are also highly regulated and may not have enough flexibility to structure a loan to meet the needs of every business. That has caused alternative financing sources to emerge. These unregulated lenders are a great option for companies that can’t find a satisfactory loan through a traditional bank. Alternative financing sources will include:

  • Asset Based Lenders (ABLs),

  • Leasing companies,

  • Factoring companies,

  • Finance companies offering unitranche loans, and

  • Subordinated debt lenders.

We won’t go into the details of how each of these groups evaluates loans, but ABLs, leasing companies, and factoring companies are very focused on the underlying assets securing their loans (leases) and evaluate each opportunity without the restrictions of regulated banks.

Unitranche lenders and subordinated debt lenders typically focus their analysis on the cash flow of the business and can be very flexible in the structures they offer. ABLs are sometimes slightly less expensive than banks, but all the other options listed will be more expensive than banks.

And while the list above highlights some of the traditional alternative financing sources, there are new niche alternative financing options popping up all the time. For example, there are alternative lenders who specialize in lending to SaaS (software as a service) companies. They will structure loans based on monthly revenue or monthly recurring revenue. Keep your eyes open for niche lending in your industry.

6. Consider Raising Equity

After exhausting all available lending options, business owners who need capital should consider raising equity from an investor. Likely sources of equity are friends, family, high net worth individual investors, family offices, and private equity investors.

Raising equity will dilute the ownership percentage of all existing owners of a business, so companies should evaluate whether the growth opportunities they are pursuing are worth the dilution they will experience (they often are), or whether there is a serious risk of going out of business if the equity isn’t raised.

Capital Comparison Chart

Raising capital can be difficult, especially for business owners who don’t have the right connections or experience working with banks, alternative lenders, and investors. The team at Waypoint Private Capital can help business owners find the financing they need for their business. We have connections with lenders and investors throughout the country and have had success working with healthy companies exploring growth initiatives as well as troubled companies.

Whether a company chooses to work with Waypoint to help them secure their financing, or pursues the financing on their own, it is imperative to start the process as early as possible to allow for appropriate preparation, sourcing, negotiations, and documentation of the financing.


About Waypoint Private Capital

Waypoint Private Capital is an investment banking firm that educates and advises middle-market, privately held companies through critical stages of their business' life cycle. Waypoint helps business owners and entrepreneurs sell companies, buy companies, raise equity and debt capital for growth and recapitalization, and plan for a successful exit from their business.

To learn more visit or call us at 608.515.3354 or 918.633.2647 and speak with a Waypoint Private Capital expert.

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© 2023 Waypoint Private Capital, Inc. All Rights Reserved.

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