Apr 23, 2010

By Nitin Dacha: Working Capital: Getting it to work for you

In this economy, small to mid-size businesses are forced to work harder and smarter to survive. Companies have undergone cost-cutting measures and have found ways to streamline their processes, but the ever present capital shortfall looms clear as day in the numbers on the balance sheet and as a storm cloud in the lofty visions of the entrepreneur looking to expand the business. It is April of 2010 and with all the pollen and market potential in the air, let's take a closer look at the realities of what financial markets can bear and the position of a growing business.

The headlines today involving Goldman Sachs SEC accusations, GE and its more than 30% drop in revenue, BOFA records earnings, and Greece on the verge of a bailout reveal that the markets and major players including national entities are in their own streamlining process. Economies, capital markets, and companies are forced to evolve during such lean periods within the economic cycle more so than when markets are robust and business is booming. Local/regional banks are lending but conservatively and national banks are more conservative in their underwriting process than before. This focus on long-running business with well established credit, strong assets, and healthy balance sheets is a way for banks to recoup losses and reemerge from a period of unprecedented default rates.

As an adviser to companies, my focus is to make sure that my clients will be able to grow their business and their assets. Access to low-cost lending is still a bottleneck, but, that does not mean expansion plans or new sales should be stalled or compromised. A long-term outlook should prevail and alternative sources of capital can be utilized. Many businesses are apprehensive to exit a banking relationship but when sustained growth is hindered due to bank limitations, the question becomes not 'should I leave the bank?', it should be 'what is the right financing model that fits with my business needs?'. If your company tomorrow has a large new buy request from a new prospect in Peru, how do you ensure that you can secure the right financial package which satisfies your daily operations/sales and your new orders with unknown prospective clients? These situations require LC financing, PO financing, A/R finance, Asset Based Lending, Leasing, Trade Financing, and/or trade credit risk, or a combination of these solutions. Although these solutions may have their own inherent added cost, the upside of growing the business and engaging those entrepreneurial dreams in this lean market where only the strong will survive is pivotal.

Nitin Dacha is the principal of his won global advisory firm Nitin Dacha LLC, a New York LLC, 850-445-947,

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