Financing for a Thriving. . . or a Barely Surviving Businesses

There are two types of business owners that need financing: those thriving and those just barely surviving. “Thrivers” need money to fuel expansion; survivors need money to bankroll a change in the business.

Although on opposite ends of the spectrum, business owners in both groups should carefully consider all possible capital sources and weigh out the benefits vs. the drawbacks. Primary sources include:

  • Banks, which provide traditional and Small Business Administration loans, as well as lines of credit;
  • Investors, including private equity firms, venture capital firms, angel investors and strategic investors;
  • Family offices;
  • Finance companies, using methods such as factoring;
  • Vendors financing.

Obviously, the company that is thriving will have more choices, and a lower cost of capital. It’s more difficult, but not impossible, for the business fighting for survival to acquire funds. If they’ve prepared in advance for a downturn, they’ll give themselves the best shot of turning around the business. 

That preparation begins with the concept of considering capital sources from the day a business is founded. Whether faring well or poorly, company owners should be building relationships with their small business bankers, keeping them up to date on how the business is progressing and informing them of future plans that may include financing.

Both “thriver” and survivor alike also need to be prepared with financial forecasts and projections, as well as plans for growth and cash needs. The company fighting for survival needs to produce financial projections, balance sheet statements and cash flow reports to illustrate the business has been historically stable, and is just experiencing a short-term bump in a long road of successes. The thriver needs to produce financial statements, balance sheet, income statements and cash flow statements to show steady and stable revenue and profitability, with no bumps. 

Required of both survivor and thriver will be a financial reporting system that will have the ability to spit out reports of inventory, accounts receivables, revenue, and expenses at periods of time that are supportable. For thrivers, inventory and accounts receivables are “assets” that make a better case to lower the cost of capital. For the survivor, these assets will be used as collateral. 

Thriving businesses have a key advantage – their owners can typically invest their own money alongside the money they’ve requested from a lender or capital source. Survivors need to show their commitment to the business in other ways, with some serious collateral. This could mean their homes or other major asset.

Banks/Traditional Lenders

When using a traditional lender (think banks), the cost of capital can vary depending on the financial health of the company applying for a loan. Loan costs include interest and closing fees, and requirements throughout the life of the loan, such as the submission of ongoing financial reports throughout the year, and potential audits and reviews of annual financial reports by an outside CPA. Traditional lenders tend to be more conservative – favoring the “thriver” over the “survivor,” in order to get a single-digit returns on their money.

Investors (Private equity, VCs, Angels and Strategics)

Unlike a bank loan, in which a company takes on debt, a capital infusion from investors (angel, private equity, venture capital firm, etc.) is debt-free, but still comes at a price. Investors aren’t lending money as much as they are investing in a portion of the company, and with it, will take a percentage of profits and have a say in how it’s managed. Basically, it’s financing in exchange for a partner. The good news is that the right investor – one who can add value to the business -- can be a great asset who can help grow the business faster.

For the survivor, investors may be more welcoming than traditionally lenders. They are accustomed to more risk, and typically are more interested in the strategic opportunity for turnaround growth. Getting the attention of investors is similar to working with banks, although investors, such as “strategics,” will be more interested in the business model, competition, and overall opportunity for growth. They see opportunities to leverage a company in need of cash with other growth opportunities and will generally take on more risk for more return.


Factors – financial institutions that collateralize or purchase a company’s accounts receivable – can be a solution for any firm that doesn’t want to take on debt or partners.  Factors don’t care about a company’s financial health as much as the collectability of the accounts receivable, or invoices. 

Factors are typically used by firms with cash-flow issues. A simple example is the company that, instead of waiting for customers to pay a set of invoices, sells them to a factor at a discount, often 70-85 percent of the purchase price of the accounts. The balance of the invoice is paid once the invoice is paid, with the factor taking out its fees and commission. 

Vendor Leasing

A vendor leasing agreement is also an option for thrivers and survivors if the financing they need is for a specific piece equipment or materials offered by one company. Here, the credit-worthiness of the company is important, but this option is not as complex as applying for a bank loan. The cost comes by way of simple interest charged against what amounts to “financing” for the product or equipment purchased. Additionally, businesses may be able to take advantage of discounts offered by vendors for various reasons, including paying off a balance prior to a due date. The interest factor when utilizing this discount can equate to a double digit interest rate, much better than what you presently receive on their bank balance presently.

Capital Combinations

I’ve discussed using one lender as opposed to another in this article, but the reality is most businesses pursue some combination of these funding sources. Business owners need to ask what sources of financing are realistically available, and what’s the cost of capital for each? Which tradeoffs is a business owner willing to live with? Bank loans allows a business owner to maintain control, but may call for a personal guarantee and collateral. Investor money involves giving up a piece of the company and allowing in a partner. Beyond traditional lenders, alternative financing sources may be difficult to pursue, or be costly.