Posts Tagged ‘Business Finance’

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.

Click Here To Speak With Business Financing Specialist Brent Finlay About Your Business Financing Needs

Technorati Tags: abl, asset based loan, asset based loans, Business Finance, Business Financing

Does Your Business Have a Business Financing Strategy?

If you’re like most business owners, the answer to the question of having an actual formal business financing strategy is likely No.

The status quo for decades for most businesses has been to focus on what generates cash flow and deal with Business Financing as a short term project, whenever its required.

This typically has some form of time pressure associated with it, and because there is no regular attention spent to how to properly go about getting financing arranged, brute force tends to be employed to get through the process, get the required money in place, and then get back to work.

This has been the “business financing strategy” for many small and medium sized business largely because it worked.

Leaving things to the last minute and scrambling around to get funding in place has been an effective strategy for many. Yes, it can be a pretty stressful process to go through, but its not required very often, the results get achieved, and the pain generated quickly dissipates due to small time box everything is forced into.

The challenge going forward is that the world, at least for the foreseeable future, has changed. The probability of leaving business financing needs to the last minute and then depending on brute force and will power to muscle things through has gone way down for a number of reasons.

First, there are significantly less business lenders now than 2 years ago, and the number continues to decline on an almost daily basis as the recession continues to unfold.

Second, many of the surviving lenders aren’t lending money as they scramble to collect the accounts they already have. Even if they wanted to lend money, many of them are having a hard time finding sources of funds to finance new business loans.

Third, the more established lenders are taking a more cautious approach to the market and are being more selective with opportunities and taking their time with deal assessment, not being particularly interested with anyone in a flaming rush.

And based on the current state of the capital markets, things are not going back to the status quo any time soon, effectively changing the status quo.

So now is the time to move to a more formalized business financing strategy and approach. This is something that all businesses require. Obviously smaller businesses are less capital intensive, but they still have cash flow and have to be able to fund it if they want to stay in business.

In my next post, I’m going to get into even more specifics as to why a business financing strategy is something that business owners are going to have to start investing time in to either stay in business or grow their business.

Click Here To Speak With Business Financing Specialist Brent Finlay

Technorati Tags: buiness finance stragegy, Business Finance, business finance strategy, Business Financing, business financing strategies, business financing strategy

With all the changes going on in the capital markets these days, business owners and managers need to reconsider how they go about applying for commercial financing.

The typical approach taken over the last several decades by small and medium sized business owners when applying for Business Financing was to start the process late and provide basic information including cursory business plans and thinly supported projections.  Because of the strength of the overall economy, lenders and investors were comfortable with making lending or investing decisions from basic information.

This is not to say that considerable effort didn’t have to go into the process, but compared to today’s market, the overall lending requirements and demands for information have significantly increased.

The direction of greater focus is on management of business risk and the lender or investor protection against funding loss.  For debt financing in particular, lenders are more focused on asset security and less interested on primarily cash flow based lending.

This is a significant departure to what businesses have gotten used and its a change that many still have not made when seeking financing.   And the reality is that failing to change the positioning of a commercial financing application so that it aligns more closely to market requirements will likely result in no new capital coming into the business.

This is a real problem not only for dealing with short term cash flow deficiencies that directly impact operations, but also for all the time and effort that can go into long range planning that may not align with securing the capital required to bring things into fruition.

A better approach for debt financing needs to become more focused on hard security, details on customer and supplier financial profiles, projections that cover a longer period of time and have well supported variables,  projections that include balance sheet, income statement, and cash flows, and a business plan that provides more tactical details and less theoretical potential.

Financing strategies are now going to have to be developed farther in advance to accommodate a very unpredictable and picky  capital market focused on good deals where the risks are clearly mitigated.

Leaving things to the end of a transaction or waiting to close to the time when money is required is going to be a dangerous practice as the probability of getting anything of significant size into place quickly is low.

For More Information On How To Better Position An Application For Business Financing, Click Here To Contact Business Finance Specialist Brent Finlay

Technorati Tags: Business Finance, business financing application, commercial financing application

Most everything we here about the prime lending rates being kept at historically low levels by their respective country administrators to keep the global economy from stalling out during the recession is a bit of a farce for the small and medium sized business that contribute to driving the economy.

Yes, if you’re a well established company with a senior bank credit facility, your cost of operating has gone down due to historically low interest rates.  But in many cases, the cost saving that are realized wouldn’t make or break established companies with the balance sheets to qualify for low interest rate debt.

If a company gets offside of their balance sheet and income statement covenants with a bank, they either get their interest rate jacked up nullifying any savings, or end up with a special loans tag which can  lead to a forced payout that is even more expensive if not fatal in some cases.

For all other businesses that are looking to start, expand, grow, replace assets, and so on, interest rates near prime are mostly a myth.

Unfortunately, no one told business owners who are frantically in search of business capital right now, working off their long term conditioning of what should be available to them based on where the prime rate is sitting, that things are not what they seem.

Whether this is good or bad, fair or unfair isn’t really the issue.  Prime plus rates are difficult to secure because the economic risk is higher and lenders are being more cautious until the recessionary impacts work themselves out.

The key learning is that things are not what they seem and as a result, business owners need to reassess their ability to access incremental capital and the related cost that comes with it.

Failure to adjust to the current environment can not only waste valuable time and money searching for something that isn’t there, but it can also put basic business operations and incremental sales opportunities at risk.

The solution may be to forgo expansion or new business endeavors in the short term, or focus on lower levels of potential profit to cash flow a higher cost of capital.

For businesses offside on their financial covenants that have received a demand for repayment from their senior lender, it could be very unlikely that a similar senior lender is going to be available to replace the existing one and an extended search for money that has a low probability of being there could run the business out of time for structured and civilized refinancing.

Adjusting financing expectations sooner than later can have a profound impact on the long term health of the business.

Click Here To Speak To Brent Finlay About Your Business Financing Requirements.

Technorati Tags: Business Finance, Business Financing, business loans, Secure Capital, securing financing

I’ve written a lot lately about many of the changes in the capital markets and many of the ways these changes have impacted the ability of small and medium sized businesses to locate and secure financing.

The hard part of these recession driven changes to the market is that there isn’t going to be a near term return to the market conditions we’ve basically gotten used to over the last two plus decades.

Let’s face it, the capital markets have not seen anything like this since the end of the second world war.

A large percentage of the capital markets were driven and built up over time by the long run health of the overall economy.  Yes, there have been some significant bumps in the road over the last thirty or so years, but nothing as game changing as what we’re seeing right now.

Large parts of the market have disappeared all together as record numbers of bank and commercial financing company failures lead the headlines on an almost daily basis.

When the economy gets back to steady monthly growth, the crater in the market we now see isn’t going to fill up anytime soon.

This tells us that the go forward Business Financing market is going to take on a very different look for some time to come and it may take decades to get back to anything close to what has been in place in recent memory.

The biggest benefit to business owners with the old status quo was that there were numerous sources of capital all trying to carve out their own unique place in a market that seemed to be growing without end.   Similar to the residential market, the commercial sub prime market exploded as companies raced to get their share of the market demand for more capital.

But when the economy slowed down, and highly leveraged companies started crashing all over the place, starting a domino effect like nothing we’ve ever seen and are still experiencing, collapsing the capital market structure that was created over several decades.

And while government bailouts have helped stabilize the money supply to some extent, its hard to know if the main beneficiaries are actually going to make structural changes to their practices or continue on overheating the economy once things get back on track, getting us all set up for another recession in the not too distant future.

Bottom line to all this is that things are going to be different from now on and may be significantly different for decades to come when it comes to locating and securing business capital that your going to be able to cash flow.

Business owners have been spoiled by the funding choices available to them, causing them to practice what I would call less that optimal Business Finance practices.  In fact, in many cases, there is no business finance strategy at all.

The reality is that when you borrow money or take on an investor, the money belongs to someone else and they are going to want it back.  The building up of debt over time without a plan to pay it down is good in theory from a weighted cost of capital point of view, but in reality sudden changes in the fortunes of your lender or investor can turn your business upside down in a hurry with no solution in sight.

Business owners need to get back to contingency planning, having some amount of capital buffer to weather financial market storms, and managing their balance sheets so that debt levels are kept in check.

The days of fast and loose money are gone for now and I’m not sure if and when they’ll be back.

Click Here To Speak To Brent Finlay For Your Business Financing Needs.

Technorati Tags: Business Finance, Business Financing, business loans, Debt Financing, Equity Financing

As I’ve previously written that while the out look reports for the current recession are improving, the after effects are only starting to surface in many cases.

A recession impacts the money supply and the flow of cash through the economy.

When one area of the economy becomes cash flow constrained, the impact will slowly ripple through the rest of the economy through the related connection points.

On more of a micro level, this has the potential to impact businesses of all sizes from several different directions.

First, the business could have its commercial credit reduced by its lender or pulled completely if the lender goes out of business, which they are in record numbers.

Second, the business may not be able to access new credit for upgrades or growth, impacting its ability to perform.

Third, sales may be down to the point that fixed costs are not being covered off and cash flow injections are required.

Fourth, customers may become slow to pay or default payment.

Fifth, vendors may cut back on credit or reduce their own product line of goods the business requires.

All these and other scenarios can create negative impacts to the cash flow.

The most damaging aspect to these ripple effects is that you may not see them coming until its too late to do anything about it, or at the very least, leave you scrambling to address the problem.  When you’re hit with multiple issues from different directions, the impact can be exponential in nature.

This is where proactive Cash Flow Management has become critical in the current business environment.

As a business owner, the goal is to reduce risk where ever possible to assure the long term profitable survival of the business.  Proactive cash flow management has now gone beyond accurate forward projections on inflows and outflows and now must include greater diligence into what could potentially happen to the business and how to mitigate the potential unforeseen risks.

And cash flow protection is likely going to cost additional money, but the alternative of not being proactive can cost substantially more.

Examples of more proactive measures could include:

• Accounts receivable financing for larger customer accounts.
• Credit reviews of existing customer accounts and a review of credit granting policies to new customers.
• Applications for credit with additional vendors.
• Development of an additional vendor list even if credit is not available.
• Internal operating cost reduction strategies.
• Inventory reductions.

Most business owners are too busy with their businesses to believe they need or have time for any of these activities.  The assumption is that if they get in some sort of cash flow bind, they can borrow their way out of it.

The reality is that Business Financing for distressed cash flow is a hard ticket to come by these days and some of the forms it comes in if you can find it are very pricey.

The recession is far from over.  Financial markets are basically in disarray and have become completely unpredictable.

Whether you get hit by the storm or not isn’t the issue.

Whether you can survive a hit or multiple hits is.

Click Here To Speak With Business Financing Specialist Brent Finlay

Technorati Tags: Business Finance, Business Financing, cash flow forecasting, Cash Flow Management, cash flow projections, cashflow, cashflow management

We hear so much about the collapse of the U.S. sub prime residential market, but we don’t hear a whole lot about what I refer to as the global business sub prime lending market.

For business financing, there are three basic levels of financing.  The first level is for “A” credit and where corporate finance mostly lives.  Then there is the “B” level or sub prime level for slightly higher risk situations followed by the “C” credit level which is asset based lending.  There can be forms of asset based lending that are more A or B in nature, but for the most part asset based lenders lend strictly on the liquidation value of the assets.

In March of 2010, the “A” type lenders are still largely sitting on the fence and not lending out much money.  Most of their time is being spent trying to figure out what to do with all the customers that are behind or offside with their financing covenants.

The C lenders are lending, but the rates are high, and because their is so much used equipment and real estate flooding the market, the assessment of liquidation value, upon which the amount of financing that can be provided is determined, is very low producing much lower amounts of capital than the business owner is expecting in most cases.

And then there’s the B, or Sub debt lenders, who have basically vanished from the scene.

So right now, if you’re a business that just come off a bad year, but have pretty good options ahead of you, the types of financing options available to you are going to be limited.   In most cases, the only options that are actually lending money will be asset based lenders, and they will be taking a big bite out of your available equity with large debt service costs.

Business owners, for the most part, have not adjusted to this market shift and are still looking for cheaper money that isn’t available right now.  It is a hard decision to take on higher priced debt, but if you can make the math work in your cash flow, 2010 may be more about survival than profitability.

If you are in need of Business Financing, give me a call and we can discuss your options in more detail.

Click Here To Speak With Business Finance Specialist Brent Finlay

Technorati Tags: Business Finance, Business Financing, Cash Flow Management, Secure Capital, sub debt market

We are conditioned to believe through our consumer credit experiences that there is a never ending source of money out there waiting for us to utilize.

And while there certainly is an almost infinite supply of money available, the actual sources that businesses rely on to supply it are collectively more like shifting sand than mass volume commodity suppliers.

There are a number of reason for this.

First, unlike consumer financing which is much more uniform, business financing is highly customized with every financing opportunity being somewhat different from the rest.  A consumer has a job, a credit score, and a some amount of personal net worth.  A business functions in an industry, providing  a certain services and/or goods, has customers, suppliers, infrastructure, employees, pension plans, government remittances, and so on and so on.

Because human beings have to interpret all this data, there can be vast inconsistencies in lending decisions not only between lenders, but between underwriters that work for the same lender.

Second, debt lenders all have a financing portfolio of loans to manage.  Each portfolio will be assessed for 1) overall portfolio risk and 2) industry and/or asset concentration.  To maintain a balanced portfolio, lenders will change their application of their own lending criteria to strengthen the portfolio where ever possible.  For instance, if their loan portfolio is too highly weighted towards the automotive industry, they could stop lending to this sector all together for a period of time regardless of how strong the overall application is.

And when this happens, its not like they put a sign up stating this change to their lending practices.  Instead, the business applicant will get declined and typically will not know exactly why.  This can be quite frustrating in that a similar application for financing made several months earlier could have been approved, once again attesting to the shifting sands.

Third, lenders also source the capital they provide other sources.  Sometimes their own sources of supply dry up or cut them back, leaving less available funds for new loans.

Fourth, when economic down turns occur, lenders often will sit on the proverbial fence to see if their portfolio will become impacted by borrower defaults.   While their portfolio may be very strong, the unknowns associated with how economic forces will impact their borrowers over the near term, cause them to slow down or stop lending money.

Locating and securing Business Financing is all about where you are located, what you plan to do with the money, at a given point in time.

Even if the “where you’re located” and the “what you plan to do with the money” parts stay the same, your results can still vary widely at different  points in time for some combination of the reasons mentioned above.

This is probably the area where a business financing consultant provides the most value.  As an individual that is working daily on Business Finance scenarios, financing consultants are able to see how the sands are shifting and build that intel into their process for finding the most relevant form of capital available to their client at the point in time its required.

If you have a business financing need you wish to discuss, please give me a call and I will give you a free assessment of what I believe to be the most relevant options available to you.

Click Here To Speak With Business Financing Specialist Brent Finlay

Technorati Tags: Business Finance, Business Financing, business financing consultant, business loans, Debt Financing, financing consultant

If you’re trying to start up a business or have been in business for less than one year, the acquisition of business financing is typically just personal financing in disguise.

It doesn’t matter how thick or fancy your business plan is, or how many letters of intent you have signed, or your wealth of industry experience, if you trying to start a small business and require capital to do so, you are basically limited to what you’re personal financing profile can provide.

Take a look at banks for instance.

Unless they can get you approved through a government backed loan program for equipment, leaseholds, or real estate purchases, they are not going to extend you a business loan.  And even for the government supported programs, if you have below average credit and no personal net worth, you won’t qualify for that either.

Whether we like it or not, start up financing is equity driven, not debt driven.  If you’re looking for debt financing of any kind, it will be based highly on your personal credit,  personal net worth, and sources of personal income.

The reasoning for this is quite simple.  Depending on whose statistics you read, over 40% of start up’s will fail in 5 years.  From a lender’s point of view, if 4 out of 10 loans don’t get paid back, the lender will be out of business themselves.

So to get started, you need your own money or the equity investment of others to fund the business.

The Business Financing side is a bit bizarre in that if you apply for a business loan and are approved on the strength of your personal credit, earnings,  and  guarantee, you’re still going to be charged a business rate.   If you were able to secure the same amount of borrowing through a personal financing program that relies on the same personal factors and security features, the rate would likely be lower.

In many cases it makes far more sense to secure the personal financing available to you from secured and unsecured loans, and then lend the funds acquired to the business as a shareholder loan.  This will immediately save you money in lower interest costs.

But because entrepreneurs have their mind set on getting a business loan, lenders are more than happy to provide a personal loan in disguise at a higher rate.

Take a look at the trucking industry.  Many leasing companies require owner operators to own a home and have at least an average level of personal credit.  The trucker may think he’s applying for business financing, but the lending or leasing decision is mostly based on personal financial and credit factors.

I’m not saying this is right or wrong, good or bad; it just is.

For anyone starting up a business, the sooner they understand the above, the sooner they will stop beating their head against the wall trying to find something that doesn’t exist.

The key take away is that when you have a new business, you need to focus on leveraging your personal credit attributes to gain the best financing deal possible, regardless of what type of lipstick a lender puts on it.

Click Here To Speak To Me Directly About Business Financing

Technorati Tags: Business Finance, Business Financing, business loans, small business finance, small business financing

There is the temptation when applying for business financing to omit things that are negative and gloss over other things you personally don’t consider to be important.

The result is this semi-complete story of what you need financing for and the justification as to why it should be granted to you.

And while you could be well justified in not wanting to provide all available information, here are few things to consider when putting an application package together.

First, never purposely lie or exaggerate anything you put forward to a lender or investor.  If you ever get caught in a lie, regardless of the size, the game at that point is typically over as the lender or investor may no long view you as credible.

Second, never hold back information that would be considered material to the business or the financing facility being requested.   If something is material, then by definition it’s important and can cause an impact to other parties like providers of capital.

Third, provide what is requested as completely, accurately, and neatly as possible.   You can make judgment calls as to whether or not you wish to provide certain items, but this is also one of the fastest ways to get declined.  Remember that especially in the case of debt lenders, their financing requirements tend to be quite rigid.  If you can’t provide what they ask, then they will just pass on the opportunity.

Fourth, proactively explain all negatives that are most likely to be detected during due diligence anyway.  The best examples are negatives in business and personal credit reports.  The first thing a debt lender will do after receiving an application for financing is pull the applicant’s credit profile.  If there is no proactive explanation of any negative items that may appear, then the lender is left to draw their own conclusions.

Fifth, be conservative in your go forward estimates and have as much back up as possible to support your assumptions.  Too many times the application is lost at the point of proforma financial statements that don’t reconcile or are too “pie in the sky” for the lender’s or investor’s liking.

Nothing is worse than to be 90% of the way through a Business Financing process where the finish line is in sight, only to be declined close to the end due to some non disclosure or inaccuracy that could have been dealt with in the application without impacting the financing decision.

Making assumptions of what you think is important or germane, versus what the capital provider wants to review, can be suicide to a deal.  Providing near full disclosure, if at all possible, avoids this from being a problem.

And remember that even if you do manage to secure funding through what I’ll call creative disclosure, the longer you have the relationship with the lender or investor, the more likely the truth will be found out anyway.

If the capital provider has the ability to demand repayment, they likely will, potentially putting you into a major bind.

Recently I was working on a client’s financing request and had a business financing solution arranged twice, but got blinded sided both times when the lender’s due diligence turned up non and/or incorrect disclosure issues.

Not only was the whole process a big waste of time, but if full disclosure was provided from the start, completely different sources of financing would have been approached that were more relevant to the whole story.

Securing capital is all about the story.  But nonfiction is preferred over the alternative.

Click Here To Speak With Me Directly About Business Financing

Technorati Tags: Business Finance, Business Financing, securing capital