Archive for March 2011
Business Financing Realities
March 31st, 2011
“Proper Expectation, Process, and Focus Are Keys To the New World Of Business Financing”
I had two very similar calls this week from business owners in search of business financing for a project in their respective companies.
The individuals had applied for financing at a financial institution and had spent months now trying to get an approval so that funding could be put into place.
Both were now at the point where they were starting to run out of time and were now frantically looking around on the internet for either a replacement solution or a bridge financing solution that would buy them enough time to get the desired funding in place.
I also get similar versions of this call all the time and I don’t expect much to change in the near future.
The problem starts with a fundamental lack of understanding of where we are at in the financial and capital markets these days and how debt financing sources and equity investors approach opportunities.
Sources of money are more particular these days as to what they will provide money for and how long it will take to make a decision and get funds in place.
Business owners still believe that if they have a good plan and a good story that they will be able to locate and secure funding without much trouble. Their basic mindset is “how hard can be be…or…how long can it really take?”
While there are times that the process of business financing can go fairly smoothly, My standard advise to anyone that will listen is that the its going to take longer than you think and its going to be more difficult that you imagine. If its easier than what I have described, then that’s a bonus, and you’ll be much further ahead of schedule, but just don’t plan for easy.
In order to get success, the approach you take and the process you follow is going to be very important. If you don’t understand what that means, then you’re going to need to invest in some help from those that do.
As far as focus goes, this was the main point I made to both callers.
Both individuals sounded like they had a workable situation underway. The key at this point was to focus in on what was required to get an approval in place and do whatever was necessary to buy time and comply with the lender requirements.
Starting a new funding request with a new series of lenders where time was already short would likely only serve to divert time and energy from the deal they needed to try and complete.
Yes, it most certainly is frustrating when a lender or investor takes their time getting back to you, or continually asks for more information or third party work to be done to complete their funding assessment. When the people you initially spoke with that were so keen to receive your application for financing and to assist your business now seem to be taking an inordinate amount of time working through their own requirements, it can be excruciating, especially if you’re on the clock.
And sometimes you also have to know when things are not going anywhere and then make a course correction. But typically when things don’t go anywhere in the world of finance is due to some combination of 1) talking to the wrong financing sources in the first place; 2) not properly presenting the information in a format and level of completeness acceptable to the lender or investor; 3) not having proper risk management in place to secure the deal; 4) not having enough time for financing process to be completed; 5) not staying on top of all the individuals that need to contribute to the application.
Unfortunately for my two callers, as soon as they hung up the phone with me, they probably called the next listing they found and put in a call. In most cases they will be greeted by a marketing person who wants to take a look at their file and see what can be done. In both of these cases, based on the information I was provided, this would only serve to take precise time away from trying to make what they already had going work…even more so if they make a few additional calls.
Click Here To Get In Contact With Business Financing Specialist Brent Finlay
Business FinancingEquipment Financing Activity Higher in Q1 of 2011
March 25th, 2011
According to a recent study by a Washington based equipment leasing and finance association, equipment leasing activity in on the rise in 2011 on a couple of fronts
Here’s the link to the full article… http://www.bizjournals.com/washington/news/2011/03/23/leasing-activity-on-the-rise.html
As with any information derived from an association that potentially benefits from positive reports, I will take the findings with a grain of salt.
The report basically tells us that 1) more businesses are applying for equipment financing and 2) more lenders are approving deals than at this time last year.
On both fronts, this could indicate that things are turning around in the general economy and that lenders are starting to get back to issuing loans and leases.
The last two years have been very difficult to say the least for small businesses and equipment financing companies.
For small business, many of the equipment leasing and financing sources disappeared from the landscape due to some combination of portfolio default and funding supply constraints.
For the financing companies, there was not a ton of applications to sift from, and from the ones they did receive, the underwriters were being very picky about who they wanted to take on.
But through the first quarter of 2011, things appear to be moving in the right direction, at least according to this report.
If you’d like to get assistance with equipment leasing and financing requirements in including purchase and debt financing, contact the business financing specialist.
Business FinancingWill Record Low Inflation Keep Canadian Interest Rates Down?
March 21st, 2011
The Canadian inflation rate, tracked through the Consumer price index, minus a few volatile commodities, is the lowest its been in history according to the number released for February, 2011. Here’s the Financial Post story with more background details
http://www.financialpost.com/Canada+core+inflation+slows+record/4463311/story.html
With the Bank of Canada also commenting that there is sufficient “slack” in the economy to ward off the concerns of near term inflation, every one appears confident that the Canadian inflation target can remain within its 2% target.
So how does this impact interest rates now and into the near future at the least?
The major banks are still talking about rate increases during 2011.
Considering what’s going on in the rest of the world, its hard to imagine the cost of money increasing very much if at all in the near term.
So while it may be a good time to expand your business or refinance the balance sheet, the challenge is not likely in the interest rates going up, but the banks parting with their money. Business financing approvals for the lower cost forms of money are still harder to come by in 2011 than compared to two or three years ago.
The process for securing commercial capital is indeed more complex and not likely to get any easier any time soon.
If you’d like to find out more about how to locate and secure the business capital you’re looking for, visit the businessfinancespecialist.com
Business FinancingRefinancing Equipment
March 11th, 2011
“Things To Keep In Mind When Trying To Refinance Equipment”
One of the logical conclusion business owners have drawn in the last couple years during which cash flow has been tight for many is that they should be able to refinance the equity in their equipment to inject capital back into the cash flow.
In many cases, more established businesses with long life use assets have paid off any loans or leases owing and hold clear title to the equipment.
But while this is logical to the business owner, its not so automatic with business financing providers.
The key to this type of financing is the same as any type of financing, and that’s cash flow.
If the financing is required to prop up cash flow, then there are going to be less interested parties to provide the required debt financing and those that are interested are going to charge more for the associated risk.
As a result, refinancing equipment is not an easy game at all, especially in Canada with U.S. lenders being more open to the idea.
For the small to medium sized business owner, the challenges start with amount of financing versus security value.
To start with, most debt financing sources that will provide equipment loans and leases to refinance existing equipment will not fund more than 40% to 60% of the forced liquidation value of the assets in question.
When you’re in a depressed market period where the used equipment market is flooded with inventory, the forced liquidation value may only be 50% or less of what the business owner believes is the long run fair market value.
So if I believe my equipment is worth $100,000 and the forced liquidation value is 50% of that, and the lender will only lend 50% of forced liquidation, I’m now looking at potentially securing $25,000 against assets owned free and clear.
But for these smaller amounts of financing, the only lenders that tend to consider these applications are ones that can be convinced that better days are ahead and that the business is either stable or in a growth position versus being in distress.
With larger financing requests of $250,000 or more, the refinancing can still be done through an asset based lender even if the business is in a distressed situation, but the rates and fees are going to be substantially higher due to the higher risk of business failure and loan loss.
So if you’re looking at your equipment as a source of additional capital, consider what you might be able to actually get out of it as well as the cost of financing.
Another challenge is to figure out who is most likely to be able to help you and for the better rates and terms.
For my two cents, I recommend you work with a business financing specialist who can help you quickly determine what’s possible and where to apply so no time or money is wasted going through the process.
Click Here To Speak To Business Financing Specialist Brent Finlay
Business FinancingAsset Based Loan Fit
March 3rd, 2011
“When Does It Make Sense To Get An Asset Based Loan?”
First of all, what do we mean by the term asset based loan?
There are certainly may definitions available in the market place to choose from, but for the purposes of this discussion we are going to refer to asset based lending in the context that the assets provided as security are the primary focus of the lending decision.
When we speak of bank or institutional business financing, there is lots of asset based loans being provided as banks want hard security as much or more so than any other type of lender. The difference with a bank or institutional lender is that they will not consider lending against assets or taking assets as security unless there is the presence of strong cash flow and credit standing.
With an asset based lender, credit and cash flow are still important, but the value placed on those criteria in the decision making process is lower.
The one exception to this definition is when banks or institutional lenders have their own asset based lending program which will be an extension of their traditional business lending programs, but with higher asset leverage and more operational controls in place.
So based on this definition, when is an asset based loan a good fit?
Let’s drill down on the two most common scenarios.
Business Distress
The business is having some trouble for whatever reason and can no longer secure or retain financing from a bank or institutional lender. In this situation, the risk of lending loss is much higher and requires a greater focus on cash control by the lender and loan protect through the lender’s ability to liquidate the assets for a predictable value if required to repay the loan.
This type of asset based financing is high cost and short term in nature, typically not more than two years. A business accepting this type of loan is either going to be taking one last shot to right the ship or is buying time to orchestrate an orderly wind down in order to maximize the cash generated from wind down.
Business Growth
There are two tiers of asset based lending with respect to business growth. The first tier which is more traditional asset based lending still is providing higher cost financing as the growth period, especially for early stage companies can be quite risky. This again is short term financing in most cases, allowing the business to grow to a size and level of stability that can qualify for lower cost conventional financing.
The second tier of growth financing is for more established businesses that already have a strong balance sheet and past profit performance record, but require higher levels of asset leverage than what conventional lending programs can provide.
Determining the right fit of asset based lender to your particular situation can take some work and time. The best approach is to work with an experienced business financing specialist who can accurately assess your situation and guide you through the market.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business Financing