We are conditioned to believe through our consumer credit experiences that there is a never ending source of money out there waiting for us to utilize.
And while there certainly is an almost infinite supply of money available, the actual sources that businesses rely on to supply it are collectively more like shifting sand than mass volume commodity suppliers.
There are a number of reason for this.
First, unlike consumer financing which is much more uniform, business financing is highly customized with every financing opportunity being somewhat different from the rest. A consumer has a job, a credit score, and a some amount of personal net worth. A business functions in an industry, providing a certain services and/or goods, has customers, suppliers, infrastructure, employees, pension plans, government remittances, and so on and so on.
Because human beings have to interpret all this data, there can be vast inconsistencies in lending decisions not only between lenders, but between underwriters that work for the same lender.
Second, debt lenders all have a financing portfolio of loans to manage. Each portfolio will be assessed for 1) overall portfolio risk and 2) industry and/or asset concentration. To maintain a balanced portfolio, lenders will change their application of their own lending criteria to strengthen the portfolio where ever possible. For instance, if their loan portfolio is too highly weighted towards the automotive industry, they could stop lending to this sector all together for a period of time regardless of how strong the overall application is.
And when this happens, its not like they put a sign up stating this change to their lending practices. Instead, the business applicant will get declined and typically will not know exactly why. This can be quite frustrating in that a similar application for financing made several months earlier could have been approved, once again attesting to the shifting sands.
Third, lenders also source the capital they provide other sources. Sometimes their own sources of supply dry up or cut them back, leaving less available funds for new loans.
Fourth, when economic down turns occur, lenders often will sit on the proverbial fence to see if their portfolio will become impacted by borrower defaults. While their portfolio may be very strong, the unknowns associated with how economic forces will impact their borrowers over the near term, cause them to slow down or stop lending money.
Locating and securing business financing is all about where you are located, what you plan to do with the money, at a given point in time.
Even if the “where you’re located” and the “what you plan to do with the money” parts stay the same, your results can still vary widely at different points in time for some combination of the reasons mentioned above.
This is probably the area where a business financing consultant provides the most value. As an individual that is working daily on business finance scenarios, financing consultants are able to see how the sands are shifting and build that intel into their process for finding the most relevant form of capital available to their client at the point in time its required.
If you have a business financing need you wish to discuss, please give me a call and I will give you a free assessment of what I believe to be the most relevant options available to you.