Q: We sell laser jet printers and design jet plotters, and parts and accessories to go with them. We also do service on printers throughout Dallas/Fort Worth. How can I get funding when I have bad credit?
Ashley Valencia, owner of the Printer Depot
A: Bad credit will keep you from being able to obtain funding from some of the more common sources. But there are still options for you.
Factoring is one option. For this, you sell your invoices to a financier at a discount. Typically the invoice would need to be secured by a hard asset (in your case a printer or plotter). While discount rates vary, you can expect around 3 percent per month. If your cash conversion cycle (time from sale to cash in hand) is one month, you can think of this as providing a 3 percent discount to your customer.
Another option is to renegotiate payment terms with your vendors. While your credit history will affect this strategy, there are a few things you can do to help: 1) Pay a state fee to obtain a letter of good standing; 2) Create a Dun & Bradstreet account and work with them to establish a strong record; 3) Be sure you have a strong rating with the Better Business Bureau; 4) Sign up for, and be promoted on, consumer ratings systems such as Angie's List. With a strong track record in these areas, you can build a case to negotiate better payment terms that greatly improve your cash flow/cash conversion cycle.
You should also work with your vendors to negotiate consigned inventory, in whole or in part. With consigned inventory, you will carry the product as floor stock or warehouse inventory, but won't pay for the inventory until it is sold. At this point, your payment term cycle will begin.
Use the Small Business Administration website (sba.gov). The SBA provides loans to small businesses at very attractive rates, and it has special categories for veterans and certain business designations for which you may qualify. Similar to the SBA loan, a bank line of credit will review your credit worthiness. Nevertheless, banks — especially local banks — value their long-term business relationships. It's worth the time to go to your bank and speak to a credit specialist about the options.
Brian Abraham is an associate dean and endowed chair of the Schulze School of Entrepreneurship at the University of St. Thomas.