Finding new financing options has become extremely difficult and the banks are making it tougher every day. Yes, interest rates are the lowest they have been in over 25 years, but the conditions have made it difficult to get. If you are successful in getting the financing you need, terms may not be workable or you may have to give up more than you were hoping.
Let’s take a look at financing purchases with future sales. In other words paying for these purchases with your existing inventory or future inventory. When looking for large purchases with either new or existing suppliers, you can offer to pay them out of future sales. The economy allows for some flexibility and some of your suppliers may actually take this into consideration to keep you as an account. This will allow you to get the supplies you need and make payment over time once the product has been sold. It will take a comprehensive proposal and some savvy but creativity is the major factor in surviving in any economy.
A more viable option may be to contact your local Trade Exchanges and find out what clients they have that can supply you with what you need. Trade Companies provide up front interest free loans that come in the form of Lines of Credit and Term Loans. The loans are based on the value of the goods and services that you offer. A local restaurant purchased a new location and needed a $100,000 renovation. They approached TEC looking for an interest free loan to offset their cash costs for the renovation. We sat down with them and identified the following goods and services from our network. They included restaurant furniture, flooring, fireplace inserts, tile, painting, electrical, plumbing, etc. The Trade amount of these purchases came to $50,000. We set them up with a $50,000 interest free line of credit with the understanding that the loan would be paid back with gift cards over the next 12 months at $4000 per month. The renovation was completed and the used up the entire $50,000 line of credit. An agreement was made that on the first of each month, we were given $4000 worth of $50 gift cards. We then sold these to our network of clients.
The benefits of this transaction created massive leverage for the restaurant. They were able to save on the finance charges usually associated with a traditional loan. They were able to offset the cash costs for $50,000 worth of the supplies they needed. The loan was then paid for with $50,000 worth of gift cards spread out over 12 months. The gift cards created a built in clientele immediately that would of course bring friends, refer friends, and since the incremental cost to the restaurant for the gift cards is their food cost is around 35%, the actual cost of paying the loan back was only $17,5000. If you consider there could as high as a 20% breakage on these (cards that are not fully redeemed or that do not ever show up), this cost could be even lower.
If your business has been affected by the economy, you owe it to yourself to at least take the time to sit down with your local Trade Exchange and see what they have available. If you can identify goods and services you currently pay cash for, join. If not, wait until it is a good fit for you. The Trade Exchange will be able to fill your excess capacity with business you don’t currently have allowing you to finance purchases with future sales. Don’t forget, these purchases (paid with existing inventory) are being paid for at your wholesale costs. Every time you make a purchase within a Trade Exchange, you are paying for them at a discount.