Posts Tagged ‘Business Finance’
Securing 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
Tags: Market Opportunities For Business Lenders
July 3rd, 2010
“The Recent Turmoil In The Capital Markets Has Created Opportunities for Business Lenders”
Not only have we been witness to a large number of global bank failures in the last two years, but there have also been a number of high profile lenders that have downsized their operations in certain areas and completely pulled out of some jurisdictions all together.
The resulting shifts in the Business Financing sands have created both holes in the market and opportunities. The business lenders that remain now are presented with additional opportunities to expand their portfolios, provided they can adapt their services and risk management towards a new opportunity.
For the business owner or business manager, this has created new commercial financing options in the market to replace what has recently disappeared. Although the level of overall financing competition in all slices of the market is still down overall, the expansion by existing players is a welcome improvement.
At the same time, don’t expect these new programs to hit the market with any great force. While the lenders involved are going to be serious about exploring the identified opportunities, they are most likely to start by wading into the shallow end of the pool as they take their time getting used to water of a new market or niche.
So while it may be very much worth your while to explore these new options that could now be available in your back yard, you’re going to have to have some patience as market expansion in the world of business financing is more of turtle versus hare approach.
But as time goes by, positive experience will also lead to program expansion and more aggressive lending practices. And as the economy continues to turn around, more changes can be expected in terms of the lender mix and offerings in any market.
This will also have a dramatic impact on supply, rates and terms in certain locales where the dominant lender in a category has completely disappeared and competitors decide on their interest in filling the void that remains.
In a time when lending markets continue to trend through uncertainty its good to see some of the participants prepared to venture out into new areas where opportunity has become available.
Hopefully this will soon become more of the norm versus the exception.
Click Here To Speak To Business Financing Specialist Brent Finlay
Action is Based On Urgency
June 13th, 2010
It seems that in about 95% of the Business Financing cases I work on with business owners and managers, there is no action to secure a Business Finance solution without a certain amount of urgency being present.
On one hand, we can say that’s just human nature, that people in general require a sense of urgency or immediate need to take action.
But in the world of business financing, this is becoming more and more of a problem as lenders continue to take a more conservative approach in 2010 out the backside of the current recession.
The result is that debt financing is not getting secured in time to close deals, shore up cash flow, finance growth, and so on. None of this is good for business owners or the economy in general.
Business owners and business managers have been conditioned to believe that getting a business loan of any size or structure can be done in matter of days or weeks. So the process for even applying for financing has typically been delayed until the 11th hour.
The need for urgency is pretty much always required in that once someone makes the decision to pursue some amount of business capital for their company, there is a need to focus in on the process and stay dialed in until its completed. Making a half hearted effort towards putting an information package together, not studying the financial metrics to demonstrate your business knowledge, and poor follow up and follow through on all requests for additional information can dramatically reduce the chances of success.
So while urgency and focus is a good thing, the timing of the action needs to be adjusted to achieve better results more often.
If we go back to the analogy of a clock and time left until money is required, business owners and managers have to reset their timing mechanism to not take action at the 11th hour, but at the 9th or 10th hour instead.
Perhaps its psychologically difficult for many to develop a sense of urgency earlier on in the process of seeking financing, but this behavioral correction needs to take place in order to avoid greater financial distress when an appropriate source of funding cannot be located and secured in the time required.
Those that start earlier, with a sense of urgency, will get rewarded more times than not.
Click Here To Speak With Business Financing Specialist Brent Finlay
The Unpredictability Of Commercial Financing
May 29th, 2010
I got a call from a customer with not untypical Cash Flow Management issues and was looking for more alternatives to try and solve his problem.
What I really liked about our discussion, is that this guy understood his business cold and could tell me instantly anything I asked during my qualifying process on the phone, providing the information off the top of his head.
After this type of discussion, I never have any doubt that the client is going to be successful in their business because they have clearly been able to quickly and effectively demonstrate their intimate knowledge of what’s important as well as the things they are doing to grow the business and protect cash flow.
The challenges in this case was rapid growth and how to properly cash flow more sales, which is not an uncommon problem by any stretch with small business owners.
The business owner had also been surveying and studying his financing options in the market and had an above average grasp of where the capital markets are at and what types of options and financing structure where available to him.
Yet despite his above average knowledge level with respect to Business Financing and how the market in general would view funding his business, he still hadn’t been able to get proper funding in place, even though he’d been working at it for about 6 months.
This is becoming a more and more common theme in the phone calls I get these days.
The commercial financing market is not only hard to understand at times, but right now its almost impossible to predict. And even when you have a business in a “finance-able” position with a totally on top of it business owner, there still can be a lot of art and science into the process of locating and securing financing that the business needs.
More specifically, deal positioning, deal timing, and financial support documentation are now much more critical to lenders than any time in recent memory.
And while I am confident that the caller is more than capable of figuring everything out on his own, how much more time can he invest in the process and how is that time investment impacting his growth strategy?
If you’re business is making money and the only thing blocking you from making more money is capital, the it makes a great deal of sense to pay for the expertise required to keep the business properly funded versus losing out on the future profits lost from mucking around with something that is not only difficult to understand at times, but almost impossible to predict.
Click Here To Speak With Business Financing Specialist Brent Finlay
customer called me to discuss options, had them figured out, but still didn’t know what to do
The Best Business Financing Deal May Very Well Be The One That’s Available
May 21st, 2010
When anyone looks for financing of any type, they are intuitively looking for the best deal with the best rates, the best terms, the best fit for what their doing.
And many business owners will start out with their own set of criteria of what they are looking for in terms of amount of money and what the related terms and conditions need to be.
The challenge is then how fast their perception of what’s available to them can be lined up to the reality of the capital markets at any given point in time.
Let me explain.
At any given time, a business may be eligible for certain types of financing rates and terms, but what lending source can provide it?
When the overall market is operating during a period of sustained economic growth, more lenders will be providing similar terms on similar deals most of the time.
When the market is operating during a period of uncertainty like the current recession, the same financing opportunities can still exist for a given business, but its likely that there are fewer lenders that will provide the best potential deal at any given point in time.
The reason is that economic uncertainty increases risk and losses for debt lenders just like any other business. And to protect themselves, some debt providers will leave the market all together for certain types of deals for a period of time, some will cut back, some will expand their criteria for approval, and so on.
The result of all this is that the ultimate best commercial financing deal can be very hard to find in times of greater economic uncertainty.
And when most financing requirements have some sort of time line that needs to be met, the best deal can very well be the one that can be approved and arranged in the time required.
This doesn’t mean what you can get a hold of is the best potential deal in all respects. It just means that its a source of money you can make work in the time you have.
Searching for a better deal is always an option, but there are two things to consider with looking elsewhere. First, you may run out of time and either miss out on the opportunity you’re looking at, or incur additional costs from the delay. Second, if you are unsuccessful finding something better, there is no guarantee the first deal is still going to be available to you later, especially in strained economic times where lenders are known to change their minds or lending direction quickly.
Its a bit like the old “bird in the hand is worth two in the bush” saying. Sometimes a deal that’s close enough to your requirements needs to be good enough, at least for the short term until more predictable options are available.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business Finance Contingency Planning
May 2nd, 2010
We are now in a time when there are no real predictable rules with respect to Business Financing and capital procurement, creating a greater need for business finance contingency planning.
There are two basic types of contingency planning business owners and managers need to be consider these days.
The first has to do with existing loans and debts on the balance sheet. Its not uncommon these days for lenders to cut back the limits on lines of credit and trade suppliers to reduce credit lines. So even if the economy in general is not providing a negative impact on the profitability of your business, the business Cash Flow Management process can be turned upside down by things completely out of control of the business manager or owner.
Demand loans for equipment can also be called at any time without a formal reason or negative repayment action on the part of the business. This provides a stronger case for term loan products that do not provide the lender with such broad and subjective repayment options.
And in cases where a business has become late on payments or offside with debt facility covenants, it can’t be assumed that the lender is going to work with the owner or manager even if the cash flows are minor and expected to be rectified in the short term.
For existing debt or credit reliance, the business needs to develop contingency plans that will identify alternative sources of credit that can be secured and the related cost. This has to be continually explored on a regular basis as alternative financing options will change as time goes by as well. And the process can’t start when you have a financing problem as it can take more time than you may have before the business is negatively impacted.
For new business financing, the contingency plan that I would recommend is to start the process sooner even to the point when any new strategic direction is being contemplated. The typical planning approach is to do what’s best for the business and then look for the money that’s required to administer the plan when required. But the probability of finding and locating the desired capital has gone down on average, so it makes a great deal more sense to scope out the capital markets first and then adjust the strategic plan accordingly if required. This is far more strategic than just assuming funding will appear when required.
Business Finance contingency planning needs to take on a greater importance with all businesses that are serious about their ability to survive the current recession and profit into the future.
Click Here To Speak To Business Finance Specialist Brent Finlay
Have You Made Adjustments To Your Business Financing Positioning?
April 30th, 2010
With all the changes that have taken place in the capital markets over the last 18 months, there is now a need to change the way that requests for capital are positioned with lenders and investors.
In the recent past, applications were primarily based on historical financial statements and a decent attempt at cash flow projections to support the request for additional or new business capital coming into the business.
But things have changed whereby there is a much greater demand by lenders and investors for the business owner and manager to put forth commercial financing requests that are more thoroughly supported by source documentation and spend more time on risk management than forward thinking marketing strategies.
From a lender point of view, we have moved into a commercial lending era of loan security, lender mitigation, and business risk management. While there still is money available in the market for businesses to acquire, there is a great deal more work involved in convincing someone that you’ve thought through all the major risks that could impact the business going forward and have a plan to mitigate the risks either in a proactive or reactive sense.
In the past, a lot of the details which have always been important to a business financing deal were glossed over by lenders or investors due to the strength of the economy and the unlikelihood of many types of risk to be of an issue or concern to many business owners. This saved on the due diligence process and was supported by decades of portfolio analysis that identified what areas of risk a lender or investor needed to focus on the most.
With the impact of the current deep running recession, most of that logic is thrown out the window as its a little more of an every man for himself type of world where the business owner now has to actually think about all the things that could go wrong in advance of asking for money.
In my opinion, it the financing world had taken more of this type of security and risk first approach years ago, the current recession would not have run so deep. But in better economic times, everyone wants to get in on the lucrative capital financing markets so lenders develop more aggressive portfolios to get their share of the growing pie.
But things are different now. Lenders and investors have made the necessary adjustments, which are akin to their survival as viable business organizations.
Unfortunately, for the most part, business owners have not adjusted the way they manage their business from a financial risk point of view and as a result their Business Financing positioning when asking for new capital can be way off the mark.
Its really a return to good solid business fundamentals that we are seeing in the market. Over the long run, this should be a good thing. In the short run, it looks more like pain and confusion to those trying to locate and secure business capital.
Click Here To Speak With Business Finance Specialist Brent Finlay
Bad Business Financing Assumptions To Avoid
April 25th, 2010
Bad assumptions are a common reason for many of the problems small and medium sized business owners have locating and securing business financing when they need it.
Here are some of the more typical bad assumptions that get made on a regular basis and either inhibit capital from being acquired or cause a business to face serious short term repayment demands from lenders and creditors.
- Using government remittances to cover off cash flow deficiencies is an acceptable practice that the related government agencies will understand and work with.
- New business loans can be used to pay off arrears related to government accounts.
- Personal credit of business owners or major shareholders of small business corporations does not have a large part to play in the making of business financing .
- The process for acquiring business financing is relatively straight forward and predictable.
- Trade credit can easily be acquired for companies that have been in business for several years even if business credit still hasn’t been established or if the business has overdue trade payables on its books.
- Your business bank will be able to provide you’re financing requirements, even if you’ve just been through a rough period where the business has generated financial losses.
- Business Financing decisions can be be based primarily on the long term potential business opportunities in the future versus historical result
- The industry and geographic location where the business is located does not have any bearing on the ability to secure commercial capital.
- Prime plus interest rates are available to all businesses regardless of the level of potential risk to the lender.
- Once business financing is provided, as long as the business owner meets all the requirements of the financing facility, there is no risk that the lender will call the loans or restructure future repayment to the detriment of the business.
- If a lender does not want to continue providing your business with capital that there will be another similar lender prepared to provide refinancing quickly and with similar terms.
- Its not typically a problem to leave a financing requirement to the last minute or near the time when funds will be required as there are lots of sources of financing available.
- Shopping around a commercial financing request is the same as shopping around for the best residential mortgage interest rate.
- Once a commitment for financing has been provided, the closing process will be quick and there is very little risk that financing won’t be provided.
- Lenders will typically be understanding if you can’t make all your payments on time.
- The economy is currently improving and coming out of the current recession and the capital markets will follow closely behind.
The key point I’m trying to make is that the process of business financing is not easy by any stretch, especially if you want to secure a financing facility that best meets your requirements. Significant lead times should be built into the process of locating and securing business capital, especially in the current recessionary environment. Proper Cash Flow Management and credit responsibility are also very important aspects of any lender decision making process.
Click Here To Speak Directly With A Business Financing Specialist
Business Financing Hypocrisy
April 23rd, 2010
From both a borrower and lender point of view, we are seeing more of what I call business financing hypocrisy.
Lenders are interested in your business until they’re not interested in your business at which time they will call demand loans, cut back on lines of credit, term out lines of credit, increase interest rates, and invoke whatever get out of jail free cards they may have build into their funding commitment to the business.
Borrowers are just as bad in that they at times will promise everything but the moon and the stars to make the lender comfortable with a capital request, but when things don’t go according to plan and loan obligations can’t be met, the borrower calls his or her lawyer and tries to come up with a legal strategy to basically get around having to honor his or her promises.
When the economy is going well, these types of scenarios are played out very infrequently. But when a recession hits, as it has for the past two years, business financing hypocrisy is everywhere and its every man or woman for themselves.
The net result of this type of two way hypocritical behavior is that the financing markets are slowly down to a crawl in many sectors and geographic regions.
Lenders are asking a lot more to protect themselves with most commercial financing decisions now focused on asset based security and risk management.
Borrowers try to protect them selves by constantly looking for a better deal as they don’t like the changes in lender requirements and search for someone who is more in line with their expectations.
To say there is a lack of trust from both sides overall would be an understatement. In tougher economic times, most people tend to take a more conservative approach.
For the desperate borrower, its basically a take it or leave it market with the lender setting out what they are prepared to do without really any flexibility.
For better deals, borrowers have become more patient as lenders are having trouble hitting their borrowing targets which is the way they make money. So for good deals, there is a high level of competition and as a result, a patient borrower can find some pretty good deals as lenders cut margins to only secure solid opportunities.
But regardless of who is in a position of strength or weakness, promises made by either side are very weak. Business Financing has become a game where borrowers have to become better players to keep up with the changes in the capital markets.
If you have a business financing requirement or problem you need assistance with, give me a call and we can go through it together.
Click Here To Speak With Business Finance Specialist Brent Finlay
Even Higher Priced Asset Based Loans Can Work In The Present Market
April 7th, 2010
The present capital market is more asset based and risk averse than what business managers and owners have gotten used to in recent history. And while a traditional asset based loan costs significantly more than what one would expect from a corporate financing program, the higher rates are something to seriously consider in the current market place.
The recession has created a lot of unfortunate circumstances for otherwise strong and well managed companies. As a result of lower sales, lender demands for repayment of existing debt, or capital required for expansion or equipment upgrades, business owners and managers are now forced to consider options they would never of previously given a second thought to.
But in lieu of where the capital markets are sitting right now, the asset based lenders have become the best option for many businesses, whether the business owner likes it or not.
From the borrower’s point of view, the lending rates between 1.5% and 2.5% per month can seem to be outrageous. But from the lender’s point of view, the rates reflect the risk in the market and are based more on an equity return than a debt return, which relates to the saying that with asset based loans, you’re renting equity as there are no other lower priced debt options.
From a cash flow perspective, the cash based loans tend to be interest only and are short term in nature, not intending to be in place for more than one or two years. So even though there is no principal pay down, the actual debt servicing requirement in the cash flow may actually be less that a lower priced corporate financing deal that requires an amortized repayment.
This is what can make the asset based solution affordable for many companies with asset equity and limited debt financing options. By being able to cash flow the debt service, even at higher interest rates, the business can potentially draw on the capital necessary to main or grow operations until things settle down and better financing options become available.
This is still a better option than selling off part of the company in that the owner has the ability to repay the debt at any time and retain full ownership and control. So like I said, its a lot like renting equity.