A return to traditional finance: how EBF turns financial setbacks to success

Are you currently, or have you ever, faced a tough decision like whether it’s time to close shop or declare bankruptcy?

If a bank has ever turned you away, a supplier has delivered past due notices, or your employees have gone unpaid, you’ll know that the heft of the situation weighs you down in unimaginable ways.

What feels like the end of the line most often is because individuals in these situations believe that they are out of options. At EBF, we’re overjoyed to be in a position where we can offer those in difficult situations an opportunity to turn their situation around. In this article, Kevin Fagundes, Chief Financial Officer at Express Business Funding, outlines how hundreds of customers have returned to a bankable status following their employment of EBF products and services.

What is an “unbankable” situation?

“It’s important to define what an unbankable situation looks like first and foremost because they can take many forms,” says Fagundes.

He continues, “For example, there are businesses that are crippled by rapid success. ‘Suffering from success’, as they say. In these particular instances, a business experiencing rapid growth would be held back by its available credit facilities. Given that they have not historically performed as well (fiscally) as they are at that point in time, a bank would consider their risk profile higher than a business with a history of the same turnover. These businesses would have to discontinue particular portions of, or complete, operations to grow at a more manageable rate or risk complete capital bottlenecking.

Another example of an unbankable customer/ situation is a business that has poor liquidity. Businesses in the construction and manufacturing industry often suffer from this symptom, high cost up front, slow payment. Most of their capital is tied up in the delivery of their products and services. Though these businesses look attractive to financers when you look at their total annual turnover, the sporadic nature of their revenue streams can be unappealing to traditional financers.

Finally, there are businesses in financial distress. There are numerous reasons why a business may be in a state of financial distress, though ultimately, the symptoms are fairly consistent. These businesses are often those with the fewest options. They typically cannot gain the confidence of a bank or traditional financer and investor trust is typically too low to instigate reinvestment. An example of why this may be is due to CRA arrears, which often disqualifies customers from attaining traditional financing of any kind.

There are, of course, many other variations of ‘unbankable’ businesses, but the three highlighted above are the most common we encounter at EBF. Other reasons why a business may be seen as unbankable is because of a poor debt-to-revenue ratio, if your business has insufficient credit, and poor (perceived) organizational integrity, to name a few.”

Is traditional finance the only way?

“It never fails to surprise our team, how often we encounter customers who do not know that there are many, many options outside of traditional finance.

I think we’ve been conditioned to think that banks are the only way to secure financing. Some younger business owners are aware that they can generate capital from things like crowdfunding, but even in these cases, they think that it is only a successful model in industries like video game development.

Even I am sometimes shocked by how many options, and how much flexibility, there is outside of traditional finance. At EBF, for example, we have half a dozen financial services on offer, and each one can be tailored to fit a client’s specific needs. We often combine our services to  provide blended financial facilities that accommodate a client’s unique needs.

So, to answer the question, “Is traditional finance the only way?”, the short answer is definitely not,” says Fagundes.

What do you mean, by “A return to traditional finance?”

“I think it’s important to establish that though EBF operates outside of the traditional finance industry, we acknowledge [and promote] the benefits of traditional finance.

I’m not saying that there aren’t drawbacks to traditional finance, but in most cases, traditional finance is most likely to endorse the general good health of a business, which is why we strive to assist customer in returning to this form of finance when it best suits the customer. Our primary goal when we onboard a traditionally un-financeable customer, therefore, is to return them to a bankable state,” says Fagundes.

At EBF, we assess which factors are causing a customer’s inability to acquire traditional finance and create a customized plan to address their situation. We offer a mix of several solutions to ensure that the plan we implement is comprehensive and speaks to each customer’s unique needs.

Here’s how EBF assists businesses to become bankable using a customized solution, using businesses with a poor debt-to-revenue ratio as an example:

The need for liquidity can cause a snowballing in the accumulation of debt. Businesses typically attain a poor debt-to-revenue ratio when they experience a decrease in revenue while their overheads remain unchanged. It’s particularly difficult to experience turnaround in these situations because these businesses lack the capital to employ remedial action and scale back up. Services like Asset-based Lending allow businesses in these situations to leverage unencumbered equity tied up in assets to unlock capital, while Invoice Factoring allows for constant liquidity by providing instant access to capital stalled in lengthy payment cycle of receivables. These financial solutions can be utilized in a standalone manner, or in a blended manner, to aid in achieving business goals.

Considerations:

“Be cautious when you step outside of the realm of traditional finance. While there are many options available to businesses outside of banks and traditional financers, there are also businesses that take advantage of those in desperate situations. It’s important that you do your research. Check references and success stories, shop around, and read the fine print.

You should also remain cognizant that in most instances, the goal of your alternative financer should be to help you find the correct financial facility/s that optimizes your financial health, and in some cases, return to traditional finance where this would best suit your needs. If you feel that a financer does not have your best interest at heart, continue looking – you’ll find the right solution for you!” concludes Fagundes.

If you would like to find out more about how EBF helps businesses make a triumphant return to financial flexibility and efficiency, chat with our team here.