When working through business financing scenarios where a business needs to secure capital for some reason, there are a few things that tend to be extremely common from one situation to another.
First, the business owner is in a rush or pressed for time to get financing in place. This can be due to a number of reasons, but the most common would be that the process was started too late or the business owner spent too much time trying to secure business financing from the wrong type of lender before realizing they were wasting valuable time.
But even when you find the right lender and provide a good solid package of information, the amount of time it takes to get money advanced to complete your deal can be considerably more than you are anticipating.
Take one of my recent projects. The borrower had an immediate financing requirement that needed to be completed and funded in a matter of days. The nature of the transaction was that it typically would take two to four weeks to complete.
Why would it take so long?
Because of the number of steps that needed to be completed by different people. This is always a function of time you can expect a deal to take.
If everyone involved in the process does everything required when required, the deal could potentially get completed in less than a week.
But the moon and stars don’t typically align like that and the reality is that everyone is working on a number of things at any one time so the probability of each task getting done in the least amount of time seldom works.
From a lenders point of view, they are going to estimate more time than what is possible as the last thing they want to do is stick their neck out on a certain amount of time and then get yelled at when everything doesn’t get completed by that date.
From the borrower’s view point, someone in a hurry cannot possibly see how the outlined steps will take so long to complete.
In the recent project I’m referring, during the first five days of trying to get the deal closed, there was failed wire transfer, an email system that went down, and a main frame printing system that when down.
Each unplanned event added more time to the process and in almost every business financing scenario I’ve ever been involved with, something from the unexpected happens. It can be things like sickness, holidays, long waiting lists, people new in position, the weather, someone having a bad day, and just about anything else that Murphy’s law can offer up.
The key point here is that a business owner has to try and build in as much buffer into the process as possible and even development contingency plans if the unplanned delays are excessive. Failure to factor in more time than what you think should be necessary can cause a deal to blow up in your face, a contract to be terminated, or more costs being incurred.