Posts Tagged ‘business debt financing’
Business Debt Financing Approval Process
August 16th, 2010
“Why Does It Take So Darn Long To Get A Debt Financing Request Approved?”
In the present commercial lending environment, it can be more than a little difficult to get a loan request of almost any sort approved and funded within what most would consider a reasonable amount of time.
Here as some of my observations into some of the current challenges debt lenders are having in the market.
First, the recent recessionary forces have eliminated a significant number of lenders from the market at large or from some of the country markets that multinational lenders service. The result has been more applications being directed at fewer lenders creating an instant back log.
Second, while economic growth would suggest we are climbing out of the recession, the capital markets are still trying to stabilize from all the fall out, causing debt lenders and equity investors on average to be more cautious in their approach to lending or investing new capital.
Third, many business owners and managers will make several applications for the same capital requirement to multiple lenders in order to try and get the best available deal. This also increases the application burden on the system, further contributing to the slowed down response time.
In an attempt to reduce the back log and get focused faster on deals that can actually be completed, more lenders have gone to requiring the borrower to pay a deposit after the initial deal assessment process is complete. For the most part, the deposit is used to cover third party costs incurred for assessing a deal such as appraisals, credit reports, etc. If the deal can’t be approved, the deposit is returned less third party costs incurred. If the deal can be approved and the applicant does not choose to take it, the deposit will likely be lost.
Outside of covering lender and investor costs of assessment, the deposit serves as a commitment to the borrower to continue with the business financing process and risk the deposit if they don’t take a commitment that follows the initial lending proposal provided.
There are pros and cons to this approach. From the lender side, the required deposit at a certain stage of the process gets rid of their back log as only those seriously interested in what the lender has to offer will proceed. On the other side of the coin, borrowers are concerned about the integrity of the deposit in that does it truly relate to third party costs required to complete the commitment process, or is it just an easy way for a lender or investor to grab fees without having any real intention or ability to issue loans for all the deposits received.
The answer to getting the overall system working better is likely some mix of the old and newer ways of doing things. But until there is a significant overall change, expect the time lines for acquiring capital to be considerable.
Click Here To Speak Directly To Business Financing Specialist Brent Finlay
Business FinancingSecuring Capital Takes Time You Can’t Image
July 23rd, 2010
“Getting Deals Funded and Closed Can Be Way Harder and Take Way Longer Than You Expect”
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.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingDebt Financing Has Become a Slow Walk
May 26th, 2010
It seemed that in 2009, business owners to a large extent were not in search for capital for projects or opportunities and were collectively weathering out the recession storm. Even when there was an opportunity to expand or get something done, willing lenders were difficult to come by.
In 2010, considerably more people are trying to get something done that requires debt financing, but lenders are still taking a very conservative approach to the market, bringing the process of business financing down to a slow walk or even a crawl in many cases.
What does this mean for business owners?
First of all, there is money available for business financing deals. But the process is likely going to take longer than you can imagine, so be prepared and start looking for financing sooner or further in advance.
Second, the devil is firmly in the details as money is flowing to those with business plans and commitments that are well ironed out and defend-able. So if putting together the deals is not your thing, then you should seriously look at getting third party assistance to not only develop a comprehensive proposal, but to also make sure that the positioning is appropriate in the current market place.
Third, forget about where the prime rate is at. Spending too much time chasing prime plus one money is likely not going to get you anywhere. If the only way your project will work is with prime plus funds, then make sure you’ve got lots of time to pursue the cheaper money. Even for solid projects right now, there is something of an economic risk premium added into most commercial rates.
Fourth, consider alternative financing sources. If there is sufficient margin in the project or business opportunity, then a joint venture or higher priced asset based loan may be what is the best fit in the short term. Cheaper money can always be pursued over time after the investment has been made.
Fifth, don’t expect any favors from your banker. Banks will tend to try and help their own customers first with expansion and growth plans, but it also doesn’t even remotely guarantee that they will be able to help you out.
If you want to increase your probability of debt financing success, then give me a call and we can discuss whatever strategies best pertain to your requirements.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business Financing