If your small business were a grocery store or automotive mechanic shop, most every lender in the U.S. would immediately understand your business model. If you were to approach them looking for a line of credit, they would be able to rather quickly determine if your business is able to receive some small business financing from them or not. However, as the owner of a telecommunications company you know that this is not always the case for your industry. Traditional lenders just simply do not understand how telecom companies do business and the intricacies of telecommunications funding.
If you are a large multi-national telecom company, funding abounds for you just simply because of the huge amount of revenue your business generates month after month. However, if you are a small telecom business, obtaining that line of credit can be much more difficult. When you approach a traditional lender for funding, you will likely find that they do not understand your business model and telecommunications financing in general. It is not in the traditional banker’s interest to work with telecommunications businesses with receivables that are all small amounts with many customers. Generally, your receivables take 45 or more days to receive after delivery of services. Because these billing issues are unique to the telecom industry, traditional lenders do not fully comprehend the fine details and tend to choose to deal with businesses in more traditional roles.
Once your small telecommunications business is on solid ground, and you are looking to expand your market base, there are three options readily available to you for obtaining small business financing. These three options are: factoring, asset based solutions, and investment capital. Let’s take a quick look at each of these options:
Factoring: Factoring is a financing process which allows your company to borrow money against its receivables; your receivables are used as the collateral for the loan. The down side to traditional factoring is that this type of funding generally comes with high interest rates. By finding a lender with telecommunications financing experience, you can sometimes find a lower rate. This makes factoring a strong consideration only if you are able to locate a specialized lender with telecommunications financing experience.
Asset Based Solutions: Asset based funding solutions involve using your existing contracts, equipment, and other assets, as the collateral for your funding. This can be a good option to consider if you have a lot of assets or large contracts to leverage. However, if you own a very small local telecom company, your company may not have the assets or contracts to make this form of funding work. In that case, investment capital may be a good option to consider.
Investment Capital: If your business is open to the idea of investment capital, versus a traditional line of credit, investment capital can be a win-win situation for everyone.
While finding small business financing can be challenging in the telecommunications industry, it is not impossible. When it is time for your small telecom company to expand you should consider factoring, asset based solutions, and investment capital as possible options. Whatever your decision may be, as long as it fits within your long-term business plans, then you are sure to succeed.