Alternative lending for businesses

By Jeff Brannon

When an owner with a fairly young business wants to expand their operations, they usually go to a bank and seek out a traditional loan. Often times, business owners are surprised to learn that they are unqualified to receive traditional lending, primarily because their business is still in its startup phase.

Banks look at the business as a liability because it has not been around long enough to show there is a significant revenue history to cover the cost of the loan, making the risk for loan default greater.

Companies in this state are often in need of more capital to grow their sales. Having capital means they can expand and provide more jobs to more people.

According to a study conducted by Harvard Business School, 20 percent of small businesses are discouraged from applying for lines of credit through banks. Of the firms that do end up applying for a line of credit, 43 percent of them are rejected or approved for a partial loan amount.

One of the reasons small businesses struggle to obtain capital from a traditional bank: cost. It costs the bank the same amount of time and resources to underwrite a $1 million loan as it does a $1,000 loan. Because 39 percent of small businesses who apply for capital want under $50,000, it is not as profitable for the bank. Bankers would rather spend their time working to obtain higher loan amounts, resulting in a greater profit margin.

What is needed is an alternative to bank-based lending. SOLVE Capital provides an alternative to traditional loans. Our most recent imitative, the Royalty Based Program, provides small businesses, who are still in the early stages, with the ability to gain equity.

Whether a business needs to purchase new machinery or merchandise to expand sales, the Royalty Based Program allows small businesses to expand their clientele base without being restricted to what a traditional bank loan can provide them. This program allows businesses to continue serving their industry without worrying about how to obtain the capital to meet their client demands.

How does it work?

Small to medium sized businesses, which have a 12-month revenue history, apply to be a part of the Royalty Based Program. Under the program, businesses receive the loan they need. Instead of paying back a lump sum of money every month, the business pays a percentage off the top of their monthly-generated sales. The repayments continue until the business has repaid SOLVE Capital the agreed upon amount.

What benefit does the Royalty Based Program provide?

The equity acquired under the Royalty Based Program is one of the biggest values SOLVE Capital is able to provide. While other alternative lenders takes a permanent equity stake in the company, SOLVE Capital does not. Once the loan amount is repaid, the business has 100% of its equity.

This is the best of both worlds. Companies receive the funding they need to grow without taking on a partner who becomes a permanent part of the business.

Who is the program for?

The Royalty Based Program is for businesses of every industry. Because our customized loans range between $50,000 and $3 million, we are able to serve industries both big and small.

Jeff Brannon is the Managing Partner at SOLVE Capital Group, an alternative finance lender for small to medium-sized businesses. He could be reached at (949) 356-6601.