Aimee B. Davis Law P.C.

How to Obtain Financing for Your Business

{3:48 minutes to read}

Because I’ve represented several clients in the fashion merchandising industry, and have over 20 years of experience negotiating a wide variety of corporate transactions, I recently attended an Accessories Council event about financing sources for fashion and accessory businesses. The presentation was made by Paul Schulinder, SVP of Rosenthal & Rosenthal.
Paul emphasized the importance of these businesses starting with a plan. This requires understanding cash flow, i.e. how much money is needed to deliver orders for its goods.
In seeking financing, one’s available options depend on the life cycle of a business. So, stay adaptable. Successful businesses engage trusted financial and legal advisors that are appropriate for their particular level. Companies should be picky and find the right partners for each developmental stage of the business.
Another great tip offered by Paul was to start seeking alternative financing 3-6 months in advance of when the money will be needed.
Paul identified 6 financing options, summarized below:

1. Personal Business Loans

These are loans made by friends and family, so it is important to understand the expectations of your lender. Does the lender want to treat this as a short-term bridge loan, or will they be investing in your business for the long term? Quite often friends and family understand the risks and low expectation of return on investment (ROI), but elect to advance funds just to be along for the ride.

2. Equity Investors
In order to get this level of commitment, your business will have had to achieve a certain critical mass. Founders should be prepared to give away 10-15% of the company’s equity to these financing sources. As such, having equity investors may not be the greatest option for creating additional working capital.
3. Traditional Bank Loans  
In today’s market, these loans are virtually impossible for small businesses to obtain. Unfortunately, traditional banks are moving away from lending to small and middle market companies.
4. Factoring
Factoring is typically used in the retail channel to facilitate the distribution of apparel and accessories. Factoring is widely considered the best financing product for this sector because it can be less expensive than purchase order financing (see item #6 below). Additionally, factors provide bookkeeping services, which alleviate the financial administrative costs that burden small businesses, so factoring is particularly helpful for startups.
5. Asset-Based Lending
As your business continues to grow, you can start to wean off the factor by moving toward more traditional asset-based lending. This requires reaching an agreement with your lender about the borrowing base, pursuant to which such financing will be extended based on a discounted value of the collateral being granted to secure the loan.
6. Purchase Order Financing/Trade Financing or Letters of Credit
These financing options are secured by a company’s underlying inventory. They are typically used by large growth companies and can be used in tandem with bank financing.
Small businesses or startups should understand and use all available resources in order to best position themselves to meet their business goals at each stage of development.

Aimee B. Davis Law P.C. is committed to advising its clients and resolving issues relating to the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email

Aimee B. Davis Law P.C.

122 Ashland Place
Brooklyn, NY 11201


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