Use financing tools to survive and thrive
Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
Smart business owners who want their businesses to thrive are adept at using financing tools to reach their goals at nearly every stage in the life cycle of their businesses. The current market is healthy, businesses are growing, and deals are being made.
Regardless of the economic chatter trending in mainstream media, the reality is 2024 deals are approaching all-time highs and business valuations continue to climb. Strategic business owners know how to creatively use debt financing to grow and boost their business to increase its value.
Debt financing may sound like an oxymoron. Who takes on debt for growth? Here is a list of financing options for a variety of situations owners find themselves in over the lifespan of their business.
- Overcome walls to growth – Many owners recognize they have hit the wall in terms of how much they can grow in their current format. They may need to purchase or merge with another business to gain the technology or talent needed to add services or break into a new market so they can scale to the next level. They can use a business acquisition loan to acquire a competitor, purchase a book of business, or expand into a new market.
- Sell and exit – Owners looking to move out of their business can use succession loans and partner buy-in loans as part of a deal structure to facilitate the sale to the next generation.
- Bring the next generation into the business with an equity position – Many owners structuring succession plans are looking for ways to cover the delta between valuations in the market (which continue to rise) and the ability of internal successors to be able to purchase the business. Depending on your business, finding a specialty lender such as Oak Street Funding might be beneficial for succession planning. Our team uses cash flow as collateral for CPA and RIA firms along with insurance agencies.
- Clean up balance sheet prior to sale – Over time, many businesses accumulateseller notes, equipment loans, and other types of miscellaneous debt.A business debt consolidation loan can help streamline the balance sheet to make financials clearer to potential buyers and facilitate a sale. A dividend recap bridge loan can also be used for this purpose.
- Take liquidity out of the business ahead of sale – Owners who are not ready to sell but want to have access to some of their equity for personal use may find a dividend recap bridge loan meets their needs. Once used primarily by private equity investors, this tool is also available to individual owners to help manage their capital within their business. It can free up liquid capital from a business prior to it being sold. It’s used for two primary purposes: paying off miscellaneous debt to clean up the balance sheet or providing liquidity to the owner at a time when they can use it rather than at the time of the eventual sale.
Financing tools can be used at all stages in the life cycle of a business – not just at the time of exit. Working with a lender who understands cash-flow-based businesses can help you discover ways financing can help you and your business reach your goals.
Alicia Chandler is president of Indianapolis-based Oak Street Funding, a First Financial Bank company, with customized loan products and services for specialty lines of business including certified public accountants, registered investment advisors and insurance agents nationwide.