Meeting Lender Expectations

“In Order To Secure Debt Financing, Make Sure You’re Able To Put Your Best Foot Forward”

In any business, there are basically three parts that need to be working in balance for the business to grow and prosper.

The three parts are Marketing/Sales, Operations/Administration, and Accounting/Finance.

For smaller businesses that are on the come, it can be hard at times to have all three areas firing on all cylinders.

The importance of this when it comes to securing debt financing can be significant as no matter how well you can present the business, its opportunities, and what you’ve been able to accomplish so far, a debt financing source or lender is going to want to be sure that everything is going to hold together as you move towards warp speed in your business plan.

Increasing size means more people, more transactions, more stuff to keep track of and manage. Without some amount of stability in each of the three areas, the brilliant up front presentation requesting  growth capital can be quickly dismissed if a lender discovers that one or more of the key business areas is under developed or lagging behind the others.

And in many cases, the weakest link in the chain is the area of Finance.

Here’s a typical example.

A business has successfully got off the ground, been operating for a couple of years, made some profits, and is well positioned in the market to start taking greater chunks of market share from competitors with inferior business models or offerings. The only thing the business owner believes they need is more capital.

But when interested debt lenders start pealing back the covers, they discover that the score keeping system is a total mess and information tracking for management purposes is mostly done on scratch pads outside of the accounting system.

This is not an uncommon occurrence that typically is trivialized by the owner as their main focus is market and sales (which it should be) with a secondary focus on operations, and limited to no focus on finance.

But from a lender’s point of view, not maintaining an up to date bookkeeping system is a big deal, especially if you’re planning to double or triple the size of the business in a relatively short period of time. And its not just about not having the historical bookkeeping completed. It’s about the business not knowing exactly where its at all the time and flying a little bit blind. This type of unbalanced approach can lead to customer bad debts, loss of supplier credit, government arrears, cash flow shortages, debt covenant failures, and so on.

In most cases, one or two weeks of intensive work utilizing some outside resources can fix the problems and get the finance function up to an acceptable level to support the other areas of the business. And this is not just to satisfy a banker. Getting the finance and accounting systems in place and up to date are essential if the business ever intends to reach its goals.

Failure to meet the lender expectations in this regard is going to make it hard to secure business financing, especially lower cost forms of capital.

Being able to demonstrate the financial aspects of your business on command is expected. The sooner a business owner comes to this conclusion, the faster the business is going to be able to grow and easier it will become to secure the capital required.

Click Here To Speak With Business Financing Specialist Brent Finlay

About the Author Brent Finlay