It drives me crazy and never fails to surprise me as to how business owners and managers approach securing business financing for their companies.
The thought process tends to leave the search for capital too long into the business planning process and when it’s finally begun the expectation is that it will be a relatively simple and straight forward process.
Some advise to consider would be starting the search for money sooner and even managing it into a path parallel to the business planning process its connected to. The reason for this approach is that locating and securing the right capital can many times prove to be the most difficult element of any potential project. Furthermore, as potential financing sources are uncovered, their related terms and conditions may require actual revisions to the business plan and the sooner this is known the more likely it can be allowed for in the planning process.
The standard assumption for not doing the above is that any financing source will be flexible enough to adapt the lender or investor program and criteria to suit the business.
In many, many, many cases, this assumption could not be more wrong.
The second problem business owners come across is assuming the process will be timely. I’ve personally worked on deals that took over a year to complete and dramatically delayed the business plans that were draw up. Business financing applications are not like applying for standardized things like a credit card, car, or even house. Each application is really unique in some way and therefore takes more time to evaluate.
Obviously requests for small amounts of capital, say under $250,000, can be more timely and predictable most of the time. But as the amount of business financing required increases, so does the degree of difficulty finding the financing source that wants to do the deal, and then actually securing the funds and getting them disbursed.
This is why I call the process of business financing an unplanned event. Its just supposed to happen on cue and doesn’t need to be planned for ahead of time. This could not be further from the truth.
And in all my years of working on financing projects, I’ve come to expect that there will be a strong sense of urgency when someone is looking for financing (due largely to the fact that s been left too late) and that the process is going to be difficult to manage.
While it doesn’t have to be that way, it almost always is.
Perhaps the problem stems from the lack of basic financing education we get in school or because the process of business financing tends to be infrequently required, so there’s no real need to learn how to properly go about it. When the need exists, just scramble through it somehow and move on (or something like that).
For companies that are on a growth path and plan to be there for a long time, there is definite value in gaining a greater understanding of how to best approach locating and securing the capital they need to effectively manage their growth.
Time has proven over and over again that business financing doesn’t have to be planned, but it sure can help if it is.