Bad assumptions are a common reason for many of the problems small and medium sized business owners have locating and securing business financing when they need it.
Here are some of the more typical bad assumptions that get made on a regular basis and either inhibit capital from being acquired or cause a business to face serious short term repayment demands from lenders and creditors.
- Using government remittances to cover off cash flow deficiencies is an acceptable practice that the related government agencies will understand and work with.
- New business loans can be used to pay off arrears related to government accounts.
- Personal credit of business owners or major shareholders of small business corporations does not have a large part to play in the making of business financing .
- The process for acquiring business financing is relatively straight forward and predictable.
- Trade credit can easily be acquired for companies that have been in business for several years even if business credit still hasn’t been established or if the business has overdue trade payables on its books.
- Your business bank will be able to provide you’re financing requirements, even if you’ve just been through a rough period where the business has generated financial losses.
- Business financing decisions can be be based primarily on the long term potential business opportunities in the future versus historical result
- The industry and geographic location where the business is located does not have any bearing on the ability to secure commercial capital.
- Prime plus interest rates are available to all businesses regardless of the level of potential risk to the lender.
- Once business financing is provided, as long as the business owner meets all the requirements of the financing facility, there is no risk that the lender will call the loans or restructure future repayment to the detriment of the business.
- If a lender does not want to continue providing your business with capital that there will be another similar lender prepared to provide refinancing quickly and with similar terms.
- Its not typically a problem to leave a financing requirement to the last minute or near the time when funds will be required as there are lots of sources of financing available.
- Shopping around a commercial financing request is the same as shopping around for the best residential mortgage interest rate.
- Once a commitment for financing has been provided, the closing process will be quick and there is very little risk that financing won’t be provided.
- Lenders will typically be understanding if you can’t make all your payments on time.
- The economy is currently improving and coming out of the current recession and the capital markets will follow closely behind.
The key point I’m trying to make is that the process of business financing is not easy by any stretch, especially if you want to secure a financing facility that best meets your requirements. Significant lead times should be built into the process of locating and securing business capital, especially in the current recessionary environment. Proper cash flow management and credit responsibility are also very important aspects of any lender decision making process.
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