Securing Telecom Financing in Today's Credit Climate

In the wake of the so-called credit crunch caused by the meltdown of the sub-prime mortgage market in the United States, it is increasingly difficult for companies, small businesses, and individuals to secure favorable loans from reputable lenders.

Internationally, line of credit resources are dryer than they have been for many years, with less financing available in the form of loans and with lenders giving individual projects much closer scrutiny when applying their formulae of risk-to-return.

This is especially true for telecommunications companies, whose business models differ from that of most conventional operations. Telecoms require significant up-front infrastructure investment and then must wait anywhere between six to twelve weeks before invoiced receivables are paid by customers using the service.

Even once money does start coming in, it can take years for the up-front infrastructure investments to pay for themselves, during which time the high-tech equipment loses value as it depreciates.

Finding telecom venture capital is made even more difficult by the high-profile woes and collapses experienced by several major telcos in recent years, like WorldCom, KPNQwest, PSINet, and One.Tel, which has left lenders reluctant to finance what they see as risky enterprises.

Telecoms need to maintain near-perfect uptime to be considered reliable by customers, making them comparable only to utilities regarded as essential services such as water, gas, and electricity suppliers. Unlike these utilities, however, telecoms needn't enter a new market as an energy-giant to survive.

Smaller ISPs can start out by supplying the dwindling, but still important dial-up market, which major broadband ISPs are increasingly disinterested in servicing at competitive prices.

As DSL and cable infrastructure becomes cheaper, smaller telecoms can also enter these markets too, in addition to providing related services like VoIP, cell phone networks, and web-hosting.

If you are involved with a smaller ISP looking to expand by securing favorable credit, independent telecom financing is available from lenders who specialize in the telecommunications industry.

Lenders with such a targeted loan base are not plentiful. However, the massive scale of the North American Internet and telecommunications market supports a select few credit providers who do business exclusively in this field by offering financing options catered to the telecom business model.

Typically, they will provide a loan against either of three possible securities, or a combination thereof. First, they can factor the money owed to you in the form of receivable invoices. This may be particularly appealing, as a loan will only be advanced against moneys that are actually owed to you. An inspection of your books can convince the independent telecom funding provider that your business is a safe risk, with regular income almost guaranteed.

Second, if your business already has significant physical assets, these can represent significant capital to borrow against in order to fund growth with the purchase of newer equipment. This is appealing because it allows you to use the very equipment you are upgrading from to fund - in part - your expansion to more up to date hardware.

The third option is one that has not been terribly important in this field in the past but is becoming increasingly so. Provided you have the staff and company who can pull it off, telecom financing can be obtained by successfully finding interested parties to put up investment capital.

If you can sell your business and plan for the future effectively to investors, you can dodge the strains of the conventional credit market altogether by securing capital directly from businesses or individuals with cash reserves that allow this kind of funding.

Telecommunications financing is increasingly difficult to secure in the wake of the US sub-prime mortgage crisis, which has had a negative effect on the supply of all potentially risky lines of credit, even from lenders not exposed to the mortgage market.

The unique nature of the telecommunications industry requires that smaller telcos looking for capital to invest in their expansion are best advised to seek lenders who specialize in telecommunications industry capital investment opportunities.

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