In the world of business financing, everything is all about timing.
Too often business owners and managers get overly focused on their ideal form of financing versus what’s available to them in the time they have.
A good example is the current situation in 2010 where many businesses are starting to see a return to more normal business patterns as we get to the back side (hopefully) of the current recession, but they lack the working capital resources to take advantage of available opportunity.
But because last year was challenging, they not only have weak financial statements to work from but also potentially strained working capital and credit due to needing to cover cash flow short falls over the last 12 months.
And even though they may have never experienced an off year before, they still may not be able to secure incremental working capital from their bank or move to another bank to gain access to a different source of capital.
But what is likely versus what they are focused on can be two completely different things.
This is where having a basic understanding of how business financing works can be so critical to your business. In times when a dog won’t hunt, its better to not go hunting, or take a different approach.
Lately I’ve been getting a rash of very predictable phone calls for this time of year from business owners frantically getting nowhere trying to secure additional funding with a weakened financial profile.
Is it possible to secure incremental financing or refinancing at prime plus rates in a weakened financial position while we’re still within in this more conservative recessionary lending period?
Yes it is.
Is it probable.
No it’s not.
There’s the famous Albert Einstein quote that the definition of insanity is doing the same time over and over again and expecting different results, which could have been written about business owners not understanding how to go about securing business financing at any given point in time.
Taking it even one step further, even if it were possible to secure your ideal financing in less than optimal lending circumstances, can this be accomplished in the time you have?
What good will it do to get the optimal commercial financing in place if you’ve missed the boat on solid business that could have helped you get back on track or at least generate some positive cash flow during the last 6 months of unrealistic money shopping?
When there is no financing contingency in place, and additional cash is required sooner or later to take advantage of opportunities or keep the balance sheet from further deterioration, the best capital to go after is capital that can be secured in the time required.
Once you get into this mindset, its not about getting the best potential deal, its about minimizing the costs associated with the most probable deals. And the most probable deals are likely going to be asset based with higher costs. They will also be bridge loans in that you’re not going to want to pay higher financing rates any longer than you have to.
Once you get focused on financing options that work with your capital needs and time requirements, the exercise becomes picking an option that you’re going to be able to afford even if the best case scenario is breaking even.
Remember, this is a short term fix because you believe better days are ahead.
But if business owners refuse to adjust their financing expectations for any point in time, they may not only descend into madness, but insolvency as well.