I good portion of what I do is to arrange business financing facilities for small and medium sized business owners.
And a good amount of the initial time I spend with a client is figuring out if they are ready to apply for financing or as I like to say, are in a “finance-able” position.
Unfortunately, I good bit of the time I have to try and convince them that until certain things are brought into order, the financing they’re looking for is unlikely to be coming their way any time soon and some potential financing opportunities may get destroyed by an incomplete or uninspiring credit package.
The truth of the matter is that business financing is much harder to secure in 2011 than it was only a few short years ago. And business owners have been spoiled into believing that close enough is good enough when it comes to putting forward the information a lender or debt provider is likely going to want to see and review.
And the old adage that you never get a second chance to make a first impression was probably first uttered by a bank manager or debt financing source of some type. A lender is going to say N0 more than Yes and the process of going through an application in many ways is a disqualification process as they try to get to N0 as fast as possible.
The fastest pathway to NO today and perhaps for a long time with a lender is to present an incomplete and somewhat sloppy application package. While most people do not have any desire to become an anal retentive bean counter, the reality is that they are initial being judged on both their physical appearance and information appearance. And by the way, a nice hair cut and a sharp looking business suit will not make up for a less than stellar information package.
When lenders turn business owners down because of incomplete information, poor information system reporting, lack of up to date business knowledge, etc., they typically will even go so far as to put notes on the file so the next time you come in to apply for business financing, even if the people you initially met with aren’t there anymore, the notes will be left behind for those that are.
From the files I work on, there are basically two types of situations that, unless you’re completely desperate for cash, should cause you to hold off applying for a loan or financing facility.
The first is about the wrong point in time. If the last business cycle was less than stellar and you’re in the middle of a pretty good year, until you can get third party financial statements completed, the application is likely going to suffer.
The right point in time is always when things are not only going good, but when you can verify that they are going good through third party validation.
The second situation where you should throw out the anchor and slow down is when the business is running a bit ragged. Sure, you may be making money and not owe much debt, but the accounting systems and other information systems are in shambles or not up to date, providing a low level of confidence that you’re in a position to manage growth or take on debt for whatever reason.
Its easy to not only waste a lot of time trying to plow a road with poor equipment, but its even easier to screw up opportunities where someone would have been prepared to advance a financing facility if you would have had your —- together at the time of application.
The key here is to make sure you are in a “finance-able position” prior to applying and the best way to do that is to work with experienced business financing specialist who knows what the market is likely to accept or not accept.