Struggling businessman

How to Get Start-up Financing Without a Bank Loan

Startup financing

Start-ups grow fast, and they need to piece together an elaborate puzzle to see the fruits of their labour. That includes brilliant people, endless hard-worked hours and sufficient cashflow. No wonder start-up financing is such an important piece of the puzzle.

It’s incredible to see a young start-up reach new levels in their business, but if the proper financing is missing, they’ll never realize the picture they envisioned. For many, the biggest challenge is getting the working capital to operate at the right scale.

A widely quoted U.S. bank study explained that 79 percent of young businesses failed due to “starting out with too little money.” Bank loans can be extremely challenging to secure at an early stage, and other financing like angel investments can bring its own set of challenges.

Co-founders and young CFOs then spend countless meetings drumming up new rounds of funding, and for good reason. Securing these series of VC funding can mean an incredibly rapid enhancement in growth, but at a cost. With pressure to grow exponentially (sometimes 10x each round) eventually, deals can be made with the wrong partners. Unfortunately, many founders never secure their funding and are forced to abandon their current business goals.

Growing like a weed, but stuck without options

Start-ups aren’t handcuffed to the traditional entrepreneur financing resources. Alternative solutions exist that can be an immediate source of consistent working capital.

For Ted Hope, President of PM Retail Solutions in Scarborough, Canada, that’s exactly what he did when faced with a financing dilemma.

“As a start-up company, you don’t have the credit or history of a more established organization. At the same time, you’re subjected to a lot of COD and cashflow issues,” Hope explained.

Hope was four months into his new business venture, a custom manufacturer of retail store display fixtures, and the outlook for the business itself was looking very promising. In fact, the company brought in almost half a million in revenue in the first six months, but that was exactly the problem.

“We were self-financing, but as we got more sales, I had about $150,000 in A/R that I wasn’t going to see for at least 60 days,” Hope explained. Since they had to wait for customers to pay their invoices, cashflow was tight.

Different kind of start-up financing

For start-ups and growing small businesses, this situation is likely familiar. It’s unfortunate, but 82 percent of businesses that fail, do so because of cashflow problems.

For companies with regular invoices like PM Retail Solutions, they found an alternative solution with accounts receivable financing (also known as factoring). By leveraging those unpaid customer invoices, they could get almost immediate cash flow from their Liquid Capital partner. Hope worked with Liquid Capital to get paid upfront for a significant value of the customer invoices.

The fix was almost instantaneous. PM Retail attained a pre-approval and received $60,000 in their account within only one day of initializing the transaction. Liquid Capital was then responsible for collecting on the customer invoices, and distributing the additional revenue to PM Retail at that time. This also freed up a lot of time for Hope and his team.

Hope had found his solution. “Factoring allowed us to free up our cash flow during a precarious time as a start-up, making us almost instantly capital self-sufficient. We can pay COD for almost everything we do, and have better terms because we have money in the bank.”

Finding the best solution for your start-up

Of course, this solution is one of many, but it’s worth investigating to see if it’s the right one for your business.

Alternative financing specialists can offer you sound advice, and should be able to work as a supplement to your traditional banking options as necessary. In many cases, Liquid Capital will work with clients on both short and long-term timeframes as needed, and can help a client graduate to access traditional bank loans as well.

Until that point, alternative solutions like accounts receivable financing can not only bridge the start-up funding gap, but can be the flexible solution that a founder and CFO have been searching to find.

Read the full story on PM Retail Solutions here.

Cutting flowers

Dig It Apparel Inc

A fast road to success

When Claudia Harvey, CEO and Co-Founder of Dig It Apparel Inc, and her partner came up with the idea for Dig It Handwear® —a line of utility/gardening gloves specifically targeted to women because they could protect hands and manicured nails—they knew it was a good one. Still, they weren’t prepared for how good—and how in-demand—their product would be.

The idea was hatched at a casual BBQ. After damaging their hands and nails in the garden the day before, the two entrepreneurs researched the marketplace and realized there was a need to create a glove that protects women’s hands and nails—and the investment they’ve made in their manicures. Taking the leap to launch the business, Dig It appeared on the top-rated CBC show Dragons’ Den within just a few months. Their goal was to obtain $50,000 in financing for 10% of the business—along with some publicity.

Their plan worked. Dig It partnered with Kevin O’Leary (also of NBC’s Shark Tank fame). Shortly after their appearance on the show, the business started to grow and the orders started rolling in—including orders from Home Depot Canada and US worth upwards of $400,000. The retailer wanted the product in time for spring, just a few months away.

While this was undoubtedly good news, it also came with its fair share of challenges, particularly because Dig It didn’t have the cash flow needed to manufacture and ship such a large order, let alone make it through the 35 to 60 days it would take Home Depot to pay the invoice (very typical of the retail market). Additionally, acquiring bank financing was difficult because Dig It wasn’t yet large enough to qualify for a commercial loan, and the need was greater than a small business loan could support.

“We fell into the gap. A small business loan is usually about $50,000, which we qualified for, but we needed between $200,000 and $250,000—and weren’t even sure specifically how much. The bank needed more solid information to bump us up to a commercial loan, and we didn’t have it. So we were not able to get the loan secured in time for manufacturing. We needed to look at other options.”

Claudia Harvey, CEO and Co-Founder, Dig It Apparel

Right solution, right time

In need of financing—and fast—Dig It started exploring the options. They started talking to other banks, but didn’t yet have the relationships or track record needed. Next, they considered selling a portion of their company—fortunately, a trusted person in their business network introduced them to Liquid Capital before that became necessary.

Immediately, Dig It realized that Liquid Capital was different from the banks. Liquid Capital understood about manufacturing cycles, sales cycles and the resulting payment gaps. As such, they knew it could take between six or nine months before a loan was repaid—and they were okay with that. The fact that Liquid Capital didn’t require proof of sales, was willing to move quickly and was also recommended by a trusted friend made the decision to go with the company a comfortable solution.

Liquid Capital quickly set up Dig It Apparel with two tiers of financing—factoring and PO financing—to help cover the company’s manufacturing costs. The loan requirements were based on manufacturing need, so, while a $300,000 credit line was made available to Dig It, the company was only charged interest on the money it actually used.

The arrangement allowed Dig It to manufacture and ship four containers’ worth of gloves in prepacked retail displays in time for the spring market—and the products completely sold out. Nine months later, the company was able to repay Liquid Capital in full.

“It helped to get an introduction to Liquid Capital from someone I trusted. Thousands of dollars were on the line. We had to basically bare our souls to a company that isn’t regulated like a bank. To move to a factoring company, you need trust and a solid introduction to a reputable provider.”

Claudia Harvey, CEO and Co-Founder, Dig It Apparel

A new phase

The supportive aid from Liquid Capital enabled Dig It to expand, allowing it to offer banks the solid projections necessary to obtain traditional financing. A year and a half later, with the aid of a bank line and investor funds, the company is setting its sights on expanding its product line and moving further into the US market, where its products will imminently be carried by over 120 retailers.

While she no longer requires the services of Liquid Capital, Claudia will never forget the integral role the company played in Dig It’s development and success and will not hesitate to recommend the company to anyone looking for help in transforming their business dream into reality.

“Liquid Capital was an integral part of our growth and evolution. It allowed us to free up our money for product expansions, so we’re now able to expand our geographical footprint and product lines,” she says.

Recent funding illustration

Recent Fundings – December 2017

A successful businessman

This Leadership Skill Can Unlock Growth and Profit

Can you be a super leader?

Leadership skills

“The top 10 companies on the Empathy Index increased in value more than twice as much as the bottom 10, and they generated 50% more earnings.”

How often do we attempt to understand things from someone else’s perspective? As an entrepreneur or small business leader, this skill is critical in human resources, but it also impacts your bottom line.

Empathy includes everything from how employees perceive you to whether customers are satisfied with your products or services. And while it’s often dismissed as overly “touchy-feely” or “wimpy and emotional,” practicing empathy is linked directly to financial gains, so ignore it at your own risk.

Why Empathy Drives Business Growth as Much as Solid Working Capital

According to the Harvard Business Review, empathy means understanding our emotional impact on others and making a change as a result. “It’s more important to a successful business than ever, correlating to growth, productivity, and earnings per employee,” HBR explained.

Need proof, check out the global Empathy Index, which analyzes the ethics, leadership, company culture, brand perception and public social media messaging of 170 companies listed on major financial indexes. Staggeringly, companies that performed well in “empathy” also had equally high overall business performance.

“The top 10 companies on the Empathy Index increased in value more than twice as much as the bottom 10, and they generated 50% more earnings (defined by market capitalization).”

 

5 easy steps for entrepreneurs to practice better empathy

empathy

Great business relationships, especially those involving growth capital and funding, start with a face-to-face understanding of the client’s needs, fears and goals.

As business partners, we’re always listening for ways to make our services more responsive. Renowned leadership advisors and empathy experts SYPartners recently published a list of 5 Ways to Cultivate Empathy, and it struck a chord. (This cutting-edge management consultancy also created an app called Unstuck that helps people understand what’s holding them back and how to move forward — it’s worth checking out.)

According to SYPartners, empathy enables leaders to “build stronger teams, design more ingenious solutions, and deepen their emotional intelligence, an increasingly covetable skill in the next era of business.”

Try their five proven ways of practicing empathy: 

1. Put down your guard.

“Your ability to feel emotions is what triggers them in others. If you want to connect with someone, you have to let yourself be vulnerable, too.”

ACTION ITEM: It’s easy to dismiss chitchat around the office, but sometimes these genuine interactions can take your business relationships to the next level. When someone asks how you’re doing, be real with them. Share a story from your weekend or a challenge you’re facing right now. SYPartners recommends starting your meetings with a “pulse-check” to invite your team to share what they’re excited or anxious about. By getting real with your colleagues, even for a moment before jumping into business, you’ll be practicing empathy.

2. Help others know they matter

“As Oprah often says: “Every human being is looking for one thing, and that is to be validated, to be seen and to be heard.” Your job as a leader is to help others know they matter.”

ACTION ITEM: In modern business, devices control our lives. Computers, tablets, smartphones and even smart watches. But they can also destroy our attention spans and ability to focus on the people around us. Can you go through an entire meeting without your gaze drifting to your screen? Often, that text or email can wait. When it matters most, give your full attention to the people around you — in face-to-face meetings, client conversations and critical moments with your staff.

3. Pay attention to body language

“Thousands of invitations for empathy cross your path every day. Do you notice them and shift your behavior, or do you let them glide past?”

ACTION ITEM: Your actions speak volumes, especially when you can pick up on subtle cues from your team’s body language — and then respond empathetically. In presentations, for example, notice how the room reacts to your comments. Pause to let key points sink in, allow curious minds to ask questions or shift your tone and topic if the message isn’t resonating. When you sense changes in your coworkers’ body language, these are visual reminders for you to acknowledge the mood and react accordingly.

4. Stand in someone else’s shoes

“It’s not always possible to get all the necessary voices at the table. But that doesn’t mean you can’t summon your imagination and best acting skills to pressure-test your team’s thinking.”

ACTION ITEM: True empathy comes from experiencing a situation from another perspective. SYPartners recommends that you take on personas in your next team meeting or workshop, assigning roles to each team member. By acting as skeptical customers, investors, competitors or a long-term client, they’ll be forced to take on those people’s characteristics — facing the challenges from a different point of view. You can also have the team interview these real people in advance to get a first-person perspective and immediate feedback.

5. Take a field trip

“It’s hard to get perspective when you sit at a desk every day. To better understand whom you’re designing for or collaborating with, go to them where they are and observe their routines.”

ACTION ITEM: Whether it’s a different team, department, office location or your client base, you’ll never get more first-hand experience than visiting where they work. Take your team on a “seeing exploration” to observe their environment, as SYPartners explains. Ask questions about how they operate on a daily basis, the major challenges they face, what they are proud of and even potentially how you can help out.

A man looking at a wall board

Taking That Leap of Faith

Shortly after I decided to go into business for myself and was in the initial phases of doing a start-up of my own, I began the process of telling a few close friends and family members of my plans. This, of course, included my mother who, after a few moments of quiet consideration, said, “Why don’t you apply for a good job at a bank?”

Like many women of her generation, my mother did not have the benefit of pursuing a formal education. That’s not to say she’s not a sharp lady. Quite the contrary. Seven decades of wisdom from life experiences coupled to her devotion to Bible studies, daily doses of Oprah, Suze Orman, and most recently, Shark Tank, have all helped shape even further her discerning mind.

Mom comes from a generation where people might spend their entire career with the same company. Someone might occasionally inherit a family business, but people in her circles didn’t go around starting businesses from scratch. It was risky, she said — like swimming less than an hour after eating a meal. And risk was a bad word in my neighborhood.

I was raised to believe that mothers are always right, so imagine my surprise upon learning she was wrong about post-meal swimming. But mom was absolutely right about start-ups. The Small Business Administration reports that about one-third of businesses with employees fail within two years of start-up, with only half surviving more than five years. With stats like that, why wouldn’t you run to the nearest corporate gig that offered a regular paycheck, predictable hours, and benefits?

You have your reasons. And I’m guessing they’re a lot like mine. There’s something about you that makes you want to run your own show.

You have a dream. Maybe it’s a new dream, inspired by a new technology or invention; or maybe you’ve had this dream your whole life and have just been waiting for the right moment to take a leap of faith. You want to bake the world’s best cupcakes, craft beautiful furniture out of reclaimed wood, or distribute a perfect new blend of exotic fish food. You’d like to spend your days running the very best Cuban bakery, dry-cleaning shop, landscaping company, cardboard manufacturer, barbecue sauce bottling plant, uniform supply company, or flooring distributorship that your town has ever seen.

You may never achieve the epic success of Google’s Sergey Brin and Larry Page, Facebook’s Mark Zuckerberg, or Amazon’s Jeff Bezos. But who’s to say that you won’t?

I have a dream as well, and that is to be here for you, as your Success Factor, advising, coaching and encouraging you — in print, online, and in person, through my webinars and personal appearances — sharing my lifetime of experiences with you, so that you won’t have to take this journey alone.

So be courageous; believe in yourself and your dream; and you will successfully mount a company with a specific product or service that is uniquely and distinctly yours.

Hold on tight. You’re in for the ride of your life.

A scientist working with biotools

BioTools

Getting the right tools to the trade

For 17 years, BioTools has been innovating and producing many of the scientific instruments critical to both pharmaceutical and university bio-research. After the business moved to Jupiter, Florida—an emerging biotech centre that has also attracted research institutes such as Scripps and the Max Planck Institute for Neuroscience—some of BioTools’ angel investor funding dried up, just as the company was introducing two new products. Despite having orders for equipment, they wouldn’t be able to produce it without an alternative source of financing.

Their first step was to bring on a CFO from the CFO Center, an organization that helps small- to medium-sized companies outsource CFOs with large corporation skills and experience. To circumvent the inherent time required—and share the cost involved—in raising equity-based funding, the CFO recommended that BioTools arrange a Liquid Capital purchase order (PO) financing facility. At the same time, the company would continue to look for the right long-term investment support.

”As CFO, my responsibility was to do everything possible to help BioTools succeed, and there were some key challenges. They sell high cost, low volume, extremely complex instruments to leading global research organizations, meaning sales are substantial but intermittent and production is done to order. This model is problematic for most financing companies, but Liquid Capital is boldly unique. They meet one-on-one to understand the client’s product, cash flow cycles and sales challenges; they make recommendations; and most importantly, they tailor financing to the client’s unique situation. In my experience, Liquid Capital solutions consistently exceed my expectation and their competition.”

Vince Arnette, Regional Director South Florida, The CFO Center

Finding a flexible financing solution

BioTools might have considered a bank loan, but its balance sheet was unlikely to support that. They did get a small loan from a merchant cash advance company, but it was not sufficient. They had also worked with a company that factored receivables, but they specifically need financing based on purchase orders, of which they had a backlog. With strategic investors still in the future pipeline, Liquid Capital was able to provide a fast, flexible solution that really fit the bill.

Flexibility, in fact, was key. The way BioTools’ products are designed, assembled and shipped is not the standard model. Delicate instruments often need additional calibration, and the path to the buyer is not always A to B. Liquid Capital was able to accommodate this alternative production model without delaying the necessary funding.

BioTools now has a PO financing facility that was opened at $1 million, and they can have their credit automatically extended as long as they continue selling to creditworthy customers. With a combination of PO and AR (accounts receivable) financing, BioTools is funding both production as well as other ongoing expenses, such as payroll, rent, etc. As a result, they are in the process of filling their order backlog.

“We have over $1.6M in back orders, but have never been able to finance those POs. Continuing to receive orders that we knew would be sitting on the shelf put us in a terrible position. When Liquid Capital said they could give us a much larger, PO-based facility, it was a godsend. Now we’re happy to get more POs, rather than getting frustrated. It’s really a fantastic facility.”

Rina Dukor, PHD, founder and president, BioTools

Financing benefits extend beyond the business

With Liquid Capital’s help, BioTools is back on track for production and shipping, and they hope to push all existing back orders out by end-of-year. And this is one case where success is more than a business outcome. There’s a reason BioTools’ customers have been patient; the products they’re waiting for are state-of-the-art and unique, and ensuring they get to the right research people and institutions means a lot more than just making investors happy.

“This isn’t just a financial transaction. The products impact students’ learning and facilitate innovative research in academia and pharma. These are new technologies that will lead to new drugs and better science. Every day these instruments aren’t in the hands of our customers is a day when they won’t discover something new.”

Rina Dukor, PHD, founder and president, BioTools

Financing for a bright future

With PO financing in place, BioTools is in an excellent position to find new customers and fill more orders going forward. Once the back orders are managed and people know BioTools is stronger than ever, the same customers will be placing more orders, while additional customers who may have been hesitant will start ordering as well.

“I started the business on credit cards and savings, plus a bank line of credit, but it wasn’t enough. Our instruments cost $60,000-100,000 to build. Liquid Capital understood the business model and came through. Getting a CFO was critical as well. In retrospect, I wish we’d had both in place from the outset.”

Rina Dukor, PHD, founder and president, BioTools