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Doing the Math in Alternative Funding: When and Where to Invest Capital


Ben Goldstein


Let’s be honest, most business owners operate from a deep hole of debt when they open a business because of the need to secure capital and investment to cover the initial costs of space, labor, and inventory. However, generating a steady stream of revenue and the employees to keep the ball rolling doesn’t mean your financial battle is over.

Even if you’re a business owner who is doing consistent sales, paying your bills, and keeping your employees happy, extra costs always have a way of turning up. For example, if you own the building you’re working in (or are responsible for its upkeep), there are overhead costs for your business — everything from office equipment (computers, software, copiers, etc.) to building operations (HVAC, power, basic maintenance).

These constant expenses have a way of sucking up your capital, so it’s often wise to seek funding for future needs. The question is, where do you look when it’s time to reinvest? Traditional bank loans can take months to secure, exclude many business owners based on credit and loan size, and require 10-20% down payments to allow for better rates. There’s also the growing field of alternative lenders who focus on fast, flexible ways to fund your growth and the needs that your daily operations require.

Learning to maximize alternative funding allows you to operate at your full potential; but that’s always easier said than done. How can we evaluate the proper places to inject the capital we need and when should we decide to use our own money versus funding from an outside source?

Should You Borrow or Rely on Your Own Money?

Let’s start with the question about when to use outside funding versus your own built-up capital. The simplistic answer is to use your own money because it doesn’t cost you anything in terms of interest fees. The problem with that theory is the risk/reward breakdown when looking at future needs and opportunities. We have all seen what can happen when a business or economy doesn’t have the cash needed in trying times. To stay protected, you need to put money away to ensure security for your company’s success.

Rarely does a small business ever have enough capital put away to secure their future, because they are just starting out and it takes time. You have to work with the math involved to find the best avenue for funding the projects and purchases needed while ensuring the company still has the ability to operate and pay back back the loan.

How to Capitalize on Alternative Funding

If you’ve ever gone to a traditional bank to borrow money, you’ve noticed that the more money you can give them upfront, the better rate and terms you are going to get. Yes, this is counter-intuitive for most people because if you had the money you wouldn’t need to borrow it. So how do we maximize alternative funding sources to increase our chances of getting better terms for traditional loans?

For instance, let’s say you have the sales needed to operate and put some money away but the cost of growth and expanding is out of reach in this competitive world. Working with an alternative funding company (such as Credibly) to leverage your revenue allows you to get a capital injection you can use to grab a larger loan at better terms from the bank.

Chances are, if you are a small business and operating well enough to get a bank’s attention they are still going to make you jump through hoops and provide new sales data multiple times, and they still might give you a higher rate if your business is less than 5 years old and considered “high risk” to them. The way you gain leverage is walking into the bank with 50K of alternative funding to show that you have capital in your account, as well as to put up against the larger loan you’re trying to borrow. Then you utilize the traditional bank loan with better terms to pay off the alternative loan within the first 90 days to minimize risk and interest. This is just one simple way you can utilize one industry to leverage another.

Replacing Equipment for High Return on Investment

As another example, let’s say you need to make some upgrades around your business and you’re trying to figure out the math behind replacing equipment or repairing them continually. The first thing you need to do is consult an expert in repairing the item you are working on — or the manufacturer themselves — and ask them what is the likelihood and frequency you will have to repair an item.

When you purchase a new piece of equipment, whether its kitchen equipment or technology, it comes with a warranty, as well as the option to purchase an extended warranty. These items allow you to maximize that capital investment you are utilizing to upgrade and fix an issue. Often times when you add up the costs of constantly repairing something, the loss of revenue because of the issue and the decreased morale that come from broken items, replacing them is the right choice. The hardest part is getting the capital together to make those purchases.

If you are looking at these items and don’t know where to start or how to get the right numbers together, reach out today. We can work with you and our partners at Credibly to find the right solution that will help you grow. Below are a few common areas that can maximize your ability to grow and put capital away.

Kitchen Equipment
The cost in constantly fixing them, and the resulting downtime and decreased morale cost more than replacing an item, more times than not. We see this issue a lot when we work with restaurants looking to turn around.

Building Equipment/HVACs
The loss of customers from building issues and the costs involved in fixing systems like HVACs and plumbing can be very high, and are often what we call “repeat offenders.” Once you start fixing them, more items start to go.

Outdated Office Equipment
If your computers are working slow or your Internet is constantly dropping out, it affects your company’s ability to operate at peak performance. You want to minimize the obstacles your company has to overcome for success.

Now, do the math: Make a simple excel spreadsheet and tab each piece of equipment you have fixed. Total these up quarterly and yearly, and take a close look at the costs. This can be eye-opening for most, as you may not be aware of how much money is flowing out the door due to repairs and upgrades.

You may look at this and ask yourself, “When will I ever have the time to do this?” That’s why companies like Blue Rock and Credibly exist. We are here to help you find the right solution and funding option to maximize your growth potential. When you weigh the cost of paying back your loan versus all the repair costs, the math will show you the correct path.