If you’re going to apply for business financing from an institutional debt lender, the time of year can have more of an impact on your application that you may think.
Like any business, a commercial lender has a budget, a fiscal year end, and financial reporting requirements.
As of this writing, we are currently in the October or the start of the fourth quarter of the calendar year which will be the fiscal year for many of the lenders out there. This means that banks, credit unions, trust companies, pension funds, etc., will be getting their books in order for their up coming year end.
For commercial lenders where the year has allowed them to already meet their targets, the last quarter is going to likely be characterized by a stiffer application of lending criteria with the intent to only take on additional loans that will lower the portfolio risk. Debt financing is a business and the people that run these organizations are going to be working hard to hit their targets to earn whatever bonuses may be available to them.
On the flip side, if a lending institution has not hit its budget by the fourth quarter and is even potentially a bit behind, there could be an opportunity to see a loosening of the credit criteria in order to get more business through the door before the clock strikes midnight on the year end.
For debt financing sources that don’t have fiscal years that match the calender year end, the same circumstances can apply.
At the beginning of the year, its not uncommon for lenders to start out with a more conservative approach to see how much low risk business will come their way. By the second quarter, if lending is below budget, the reins can once again be loosened in order to try and hit the lending numbers that will pay the bills and potentially those bonuses.
From a business owner’s point of view, it can be difficult to determine who is lending and who is less likely to lend based on the time of year.
Just keep in mind that money will tend to flow the most free in the second and third quarters, all other things being equal.
While there is no exact science to figuring out how this can impact your business financing efforts, it can be a good idea to stay connected to financial consultants and industry experts that have a better sense as to what the main players are doing at a given point of time based on whatever inside or quasi inside information they may have access to.
Here in 2010, the market in general appears to have slowed down going into the fourth quarter. While it may be too soon to draw conclusions as to what to expect from different lenders for the next few months, its definitely something to stay aware of, especially if capital is going to be required for your business in the near term.