As companies grow, a reliable source of capital is necessary to fund expansion expenses that inevitably accompany growth. Rather than turning to dilutive equity, many companies instead choose revolving lines of credit, allowing businesses the freedom to withdraw funds as needed for important things like payroll, renovations, operating expenses, and product and market expansion.
While lower in cost, lines of credit from regulated institutions often come with a lot of hoops to jump through and conditions to be met before capital can be made available. For example, if a business is launching a new product or service, the lender may be required to turn to their legal team to investigate that new offering and paper the expansion. This may result in valuable time and market share lost during that lender’s review with legal expenses passed along to the borrower. Even if “bankable”, many companies experiencing fast-paced growth recognize these bank-inherent risks and instead decide to pay a little more for the flexibility and financial stability that comes with borrowing from non-bank lenders.
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