Most middle market firms are conservative when it comes to debt. But business capital can help middle market companies achieve their growth goals. The following tips can help your company build a strategic approach to financing so that you're ready to take advantage of your options when the time is right.
As recent research by the National Center for the Middle Market and the Milken Institute reveals, middle market companies have a strong preference for relatively low levels of debt. And when they do borrow, they gravitate toward traditional business bank loans.
However, business capital can and does play a critical role in helping many companies achieve their growth goals. Especially companies with aggressive growth plans for the near term, as well as organizations that may wish to grow larger in the future. For these firms, establishing a more sophisticated approach to financing and looking beyond traditional sources of capital can be a key to achieving current or future objectives and securing an edge in a competitive business landscape.
The following tips can help your company build a strategic approach to financing so that you’re ready to take advantage of your options when the time is right.
1. Invest in Relationships
About three-quarters of middle market firms that borrow from banks cite their strong relationships with those banks as a reason behind their financing decision. Additionally, more than 50% of companies prefer to work with financing providers that have knowledge and expertise in their industry.
Clearly, middle market companies want to work with financial service providers that know them and their businesses. And it makes sense. The better a provider understands your situation, the more likely that provider can offer solutions that fit your needs.
If your relationship with your current financial services company is merely transactional, you may want to consider deepening the connection. And if you work primarily with one bank, you may want to branch out and start talking to some other providers.
Even if you’re not in the market for capital right now, investing in relationships will ensure you have a network of potential providers in place when the time comes to borrow. These relationships can also help increase your knowledge of other services or partnerships that providers can offer, which could benefit your business.
2. Anticipate Your Future Needs
The financial products and services your company needs and uses now may not be the same services you will need in six months. Or one year. Or five years down the road. As your company grows, you may find the need for increasingly specialized financial services and products, such as inventory-based financing or solutions that can help you expand overseas.
Do your current providers offer these capabilities? If not, you may want to look for additional financial service partners that are better equipped to accommodate your company’s future plans.
3. Think Beyond Your Geographic Expansion Plans
Business capital is more than a tool for financing expansion into new markets or expenses related to building a new plant or facility. Companies can also use financing to build and modernize capabilities, including technology, financial, and operating systems; research and development capabilities; and more. The right financing solution can help your business establish capabilities that translate into a real competitive edge, thus providing a healthy return on your investment.
4. Be a Smarter Shopper
The financial services industry changes, like every other. You should be alert and knowledgeable about the industry, just as you are about any other supplier of goods and services to your business. By developing a working knowledge of what's available and staying on top of the trends, you can position your company to have access to the right financing solutions to fit your current or future capabilities.