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Finding Funding for Tech Firms: Thinking Outside the Box

Sunday, 05 August 2012 19:51

IT FundingA recent survey conducted by the National Small Business Association (NSBA) indicated that many small business owners are still having difficulty obtaining loans in the traditional business lending marketplace. According to the survey, 43 percent of responding small business owners reported that they had unsuccessfully sought funding within the last four years. The problem is so prevalent that it has been explored by the New York Times in their Small Business Guide section. While bank loans are still available for well-qualified borrowers, adopting a more comprehensive approach to funding is likely to produce better results for small business owners.

Traditional loans hard to find

According to the NSBA survey, many small business owners have experienced downgraded credit ratings in recent years; 60 percent of those owners reported that these negative changes were the result of the lending institution's internal risk assessments. These same risk assessments can pose significant challenges for technology firms looking for funding to start a new business, expand their current business or to refinance existing loans to manage temporary cash flow situations.

Small business loan options

The New York Times article suggested a number of loan options for small business owners. Lease-back arrangements for owner occupied properties were discussed; these business loans allow owners of technology firms to access the value of their equity while retaining the use of their current premises. Accounts receivable loans and business factoring loans are among the most common lending arrangements and allow small business owners to use their unpaid invoices as collateral for short-term funding. Peer-to-peer lending may also be a viable option for small businesses in the technology field, but these loans are primarily restricted to businesses with good credit ratings.

Increasing the chances for success

Technology firm owners can boost their chances of acquiring the funding they need for expansions or loan refinancing by providing documentation in five key areas. Banks consider these five factors as part of the risk assessment process:

  • Ability to repay the loan on time
  • Available security to protect the lending institution against financial losses
  • Cash on hand and liquid capital assets
  • Credit rating of the company
  • Current economic conditions in the industry

The last factor may be the most critical element in the overall scarcity of loans in the technology industry. Banks are often unwilling to take the risk of making a loan to smaller technology firms, even if the other four criteria would support those loans. As a result, tech firms should ensure that they have made the best case possible and have fully documented their loan applications with financials, cash flow projections and business plan summaries. This can improve the chances of funding and help to minimize the impact of recent downturns in the technology field.

CNF Exchange can provide assistance to tech firm owners in documenting their loan applications and managing the overall process effectively. This can enhance the chances of acquiring needed funding and provide a solid foundation for future growth. Additionally, CNF Exchange can help technology companies connect with lenders who offer accounts receivable loans, business startup loans and other business financing options, allowing them a greater degree of choice and more options for acquiring the funding they need to succeed.

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