"The most common way to increase capital with debt, for a distributor, is to seek an asset-based loan backed by a percentage of accounts-receivable and of inventory," Vera explained. "The most common way for a distributor to increase capital with equity is to put money into the business."
Greg Muzzillo, Proforma's founder, noted that of the three common types of loans—asset-based, personal guaranteed and unsecured—the former is generally preferable for distributors. Personal guaranteed loans come with too much risk for new businesses (making personal assets available as collateral is dangerous when the failure rate for startups is so high); unsecured loans are often dependent on borrower reputation and can come with higher interest rates. That's why Greg recommended asset-based loans. "The most common assets a distributor has to collateralize a loan are accounts-receivable and inventory," he said.