When Numbers Don’t Add Up: Strategies to Overcome Financial Challenges

Kyle Wilson

Last Modified : May 03, 2024

Fact-checked by: Bruce Sayer

Despite last year’s unexpected strength in consumer spending and GDP growth, persistent inflation, a tight credit market, and high-interest rates are prolonging economic uncertainty. As a result, many companies across industries find that their once-successful business models are no longer viable, and need significant adjustments as the numbers no longer add up. Maintaining sound financial health is paramount for resilience in such a dynamic economic landscape.

While growth is expected to moderate in the coming months, the long-term outlook looks positive. The National Association for Business Economics (NABE) predicts that GDP will rise 2.2% in 2024, a significantly more bullish forecast than the group projected only two months ago. However, many small and medium-sized businesses (SMBs) are concerned about their short-term risk exposure as their balance sheets reveal financial deficits. Taking control of current financial metrics is the first essential step for securing long-term sustainability.

When numbers don’t add up, financing strategies to overcome these challenges become critical. Keep reading to learn more about flexible business financing solutions to help under-capitalized businesses balance their books, meet financial obligations, sustain operations, and fuel growth.

Maintain solvency is the priority

While long-term sustainability is crucial, some companies can survive for years without being profitable by relying on the goodwill of creditors and investors. However, safeguarding short-term liquidity and consistent cash flow are essential to prevent insolvency. Dependable cash flow is more important than profit, as cash is king in keeping a business operational. For many under-capitalized companies, securing financing to maintain solvency is the priority.

An effective financing strategy

Due to their stringent requirements, traditional financing options may not be accessible or practical for many under-capitalized businesses. This is where specialty lenders step in, offering a practical strategic approach to overcoming financial hurdles. These lenders specialize in providing flexible business financing options for companies needing fast, reliable funding with terms tailored to meet their business needs.

These flexible financing solutions allow companies to secure loans or credit lines based on the value of their assets. Common assets used in this type of financing include accounts receivable, inventory, equipment, and real estate. Typically, the credit accessible to a business is calculated as a percentage of its asset valuations.

Such a financing strategy empowers companies to improve liquidity, manage cash flow, and finance expansion without diluting equity. It is adaptable to the company’s borrowing needs, features minimal loan covenants, and enables credit expansion as businesses grow and evolve.

These financing options offer a viable funding solution even for businesses without strong credit history or predictable revenue streams.

Exploring business financing options:

Specialty lenders offer a range of flexible financing solutions tailored to meet the specific needs of SMB businesses across industries. By understanding the different financing solutions available, companies can strategically leverage these tools to fulfill their financial requirements.

These flexible financing options include:

Asset-Based Lending (ABL): ABL is a form of business financing provides loans or lines of credit based on the value of a company’s assets, which serve as collateral. These assets may encompass accounts receivable, inventory, equipment, and occasionally real estate. The loan amount is usually determined as a percentage of the appraised value of the secured assets.

Invoice Factoring: Invoice Factoring is a financial transaction in which a business sells its accounts receivable (invoices) to a third party (a factor) at a discount in exchange for immediate cash. This financing option provides liquidity without incurring debt, enabling businesses to maintain steady cash flow.

Accounts Receivable Financing: Accounts Receivable Financing, also known as Invoice Financing or AR Financing, allows a business to borrow against its outstanding invoices. Instead of selling the invoices, the business uses them as collateral to secure a loan or line of credit. This solution provides access to immediate cash flow while allowing the business to maintain control over its invoicing and customer relationships.

These financing options can be tailored to meet the exact needs of different B2B businesses across various industries. The flexible nature of these solutions provide a strategic lifeline for companies seeking to unlock liquidity and maximize cash flow efficiencies to navigate financial hurdles and chart a course toward sustainable success.

Key benefits of customized financing

Companies facing financial challenges require flexible financing that can adapt to fluctuating cash flows, alleviate short-term liquidity constraints, and facilitate growth opportunities without being constrained by rigid repayment terms or stringent lending criteria.

Financial flexibility enables business agility. It is crucial to support a business’s ability to swiftly adapt to changing market conditions, customer preferences, and unforeseen challenges. An agile business can pivot its strategies, streamline processes, and innovate efficiently.

The key benefits of customized financing from specialty lenders include:

Flexible Financing Structures: Unlike traditional loans with rigid repayment schedules and fixed interest rates, these financing options offer greater flexibility in structuring terms and repayment schedules. Lenders evaluate the value and liquidity of assets to tailor financing arrangements aligned with borrower’s unique needs and circumstances, providing a customized solution that accommodates cash flow fluctuations and growth trajectories.

Liquidity Injection: These customized financing solutions from specialty lenders unlock the dormant value of assets, allowing businesses to access immediate liquidity without selling or divesting ownership. Whether unlocking cash tied up in inventory, leveraging accounts receivable for working capital, or using machinery and equipment as collateral, businesses can harness their existing assets to bolster cash flow and finance growth initiatives.

Maximized Access to Credit: With high evaluations and advance rates on multiple asset categories, plus the ability to increase credit limits as the business grows, these financing options provide readily available capital when needed.

Risk Mitigation: By securing financing against tangible assets, businesses mitigate lender’s risk, thereby enhancing their ability to access funding at competitive rates and terms. These financing solutions involve less stringent credit requirements than unsecured loans, making them attractive options for companies with limited credit history or undergoing temporary financial challenges.

Supports growth initiatives

Once a business has stabilized its financial structure, it may shift its focus on implementing growth initiatives to expand market share, increase profitability, and ensure long-term sustainability.

Whether expanding operations, acquiring new equipment, or pursuing strategic opportunities, these tailored financing options from specialty lenders provide the capital needed to fuel growth without diluting equity or taking on excessive debt. By leveraging existing assets, companies can confidently seize growth opportunities, knowing that their financing is backed by tangible collateral.

Conclusion

Businesses today face unprecedented financial challenges in a post-pandemic landscape marked by economic uncertainty. Many business owners and finance leaders are concerned about their short-term exposure to risk as bottom-line numbers don’t add up. These companies must prioritize financial agility to maintain solvency and re-establish stability before focusing on long-term sustainability.

As traditional financing options may not be accessible or practical for many companies, non-bank financing emerges as a strategic lifeline for under-capitalized businesses. Within this category, specialty lenders offer flexible solutions to address immediate liquidity needs, support operations, and fuel growth initiatives. By leveraging assets such as inventory, accounts receivable, and equipment, businesses can unlock capital, mitigate short-term financial deficits, and position themselves for long-term success amidst evolving market dynamics.

Contact us today to learn about our approach to lending to support companies in overcoming financial challenges and fostering long-term success.

Key Takeaways

• Many companies across industries find that their once successful business model is no longer viable and needs significant adjustments as numbers no longer add up.
• For many under-capitalized businesses, securing financing to maintain solvency is the priority.
• Specialty lenders provide a range of flexible financial solutions, each tailored to meet the specific needs of SMBs across industries.
• These creative financing strategies empower under-capitalized companies to improve liquidity, manage cash flow, and finance expansion without diluting equity.

Kyle Wilson

Kyle Wilson, SVP, Business Development Officer, is responsible for business development efforts throughout North America, supporting eCapital’s mission to empower companies by accelerating their access to capital.

Kyle joined eCapital from Hitachi Capital Canada, where he held the position of Director, Business Development. Prior to that, he held business development management positions at Bibby Financial Services, i-Cubed Industry Innovators, BDC and Bank of Montreal. He is a Chartered Professional Accountant and Certified Management Accountant and holds a bachelor’s degree in Business Administration, Commerce and Finance from Brock University.

Kyle is a seasoned CPA and CMA and is instrumental in supporting clients and partners financing requirements while driving our continued growth in the commercial lending space.