Posts Tagged ‘business financing application’
Ready To Apply For Busines Financing?
February 24th, 2011
“Are You Sure You’re Ready To Put In An Application For A Business Loan Or Business Financing Facility?”
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.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingBusiness Financing Application – Key Components
August 27th, 2010
“Here Are Three Key Components That Should Be Present In Every Business Financing Application”
I’ve written before how a business financing application has everything to do with the story.
Today I’m going to take that one step further and talk about the three main components of the story and how they collectively wrap and tie all the other information together.
When I worked in the corporate world, any time I had to report on the overall health of the business at a given point in time, the higher ups always wanted to know three things:
Where are we at right now?
How did we get here?
Where are we going?
These are the same three questions that any serious lender or investor is going to want answered as well. So instead of just throwing a bunch of paper at them in the hope they get what they need, the process is a lot more effective if every element of a business financing application package is linked into the answer to one of these three questions.
For instance, the answer to “where are we at right now” is centered in the current financial statements, appraisals, estimates, quotations, bank statements, and so on that reflect the here and now.
“How did we get there” is partially answered by the historical financial statements of periods past. And “where are we going” is partially covered off by financial projections.
All the numerical reporting and projections are tied together from past, present, and future by the overall story.
Like any good story, the information has to flow from beginning and lead the reader in the right direction versus confusing the heck out of them or causing them to become frustrated with inconsistent information that leaves them unsure of what’s really going on.
But to really make the overall business financing story holds water, it must address all three questions and make sure the answers to any one do not contradict the answers to the others.
A well written business financing application is not going to assure that you’re getting the capital you’re after, but it will increase the probability of the lender or investor clearly understanding not only your request but the supporting information, which can be a major challenge in and of itself.
Next time you’re putting a business financing application together, take a few minutes to review it when you’re finished and see if you’ve answered each of the three questions. If you haven’t covered them off sufficiently you should consider taking a bit more time and tying up all the loose ends before submitting your request.
Click Here To Speak To Business Financing Specialist Brent Finlay
Business FinancingBusiness Finance Applicatons Have Three Parts
July 18th, 2010
“When Putting Together a Business Finance Application, Make Sure You Including The Following Elements…”
When I was working in a large U.S. multinational, anytime I was drawn on the carpet to report on the business for whatever reason (the good, the bad, and the ugly), the boys and girls in charge of the ivory tower always wanted to know three things:
Where is the business at right now?
How did we get here?
What are you going to do next to either take things to the next level or fix the existing problem?
If there was any fancy graphs or charts that drew their attention away from the above, I was always quickly pulled back into the world of what was important to them, and needed to focus in on answering these questions before any other form of communication was going to take place.
While perhaps not exactly the same with business lenders, you should be taking a similar approach with your business financing application.
The first question, where is the business right now, is answered by an up to date balance sheet and interim income statement. The balance sheet will be supported by an aged accounts payable and accounts receivable, and a fixed asset ledger.
The second question, how did you get here, is answered by three to five years of historical financial statements prepared by an outside accounting firm.
The third question, where are we going, is answered by detailed financial projections including at least 12 months of monthly cash flow projections, two years of overall cash flow projections, two years projection income statements and balance sheets that reconcile to the cash flow projection and the current financial position. The projections will need to include detailed assumptions that explain how every (every) number is created and what its based on.
While this would appear intuitive on the surface to most, there are two key areas where the information is lacking.
First, business finance applications do not connect the different areas together. There can be significant in-congruence between past and present, and between present and future. Its extremely important that the story being told by the financial statements (and the narrative report that should be included to minimize assumptions and off base interpretations) is congruent, well balanced, and flows from one period to the other without being disjointed or inconsistent.
Too often, business owners provide all the information, but don’t reconcile the collective package to make sure the story being told is tight and accurate and seamless from beginning to end.
Second, most business finance applications do a very poor job documenting the assumptions in the projections and providing good logic and support for all the numbers being projected. Past, present, and future are all important elements to every applications … equally important. Unfortunately for many business owners, the glossing over of the projections can result in declines or less than optimal terms.
If you need help answering these questions when seeking business financing, give me a call and we’ll go through your business profile from beginning to end together.
Click Here To Speak To Business Financing Specialist Brent Finlay
Business FinancingBusiness Financing Application Faux Pas
May 10th, 2010
If your business is technically not eligible for a certain type of financing, no amount of detail provided in your application is likely going to help swing the lender in your favor.
There is no question that a well prepared application package that is well organized, informative, and visually appealing can help you impress a lender and for marginal deals that are just on the bubble, perhaps this can put you over the top.
But the bigger concern with business applications is to not talk yourself out of biz financing that you would be otherwise eligible for, but still get declined due to poor, inconsistent, inaccurate, misleading, or even false presentations.
The application package you submit should be designed to present the specifics of the business as accurately and clearly as possible. And while this is the intention most business managers and owners, they cross themselves up by not making sure that all the information provide is consistent and relevant to the case for business financing they are trying to build.
Here are some examples of what I call business financing application Faux Pas.
- Lenders will be interested in historical and future financial statements for the business. Its not uncommon for the lender requirements to state the same information more than once or provide it in different forms. Its also not uncommon for borrowers to provide different numbers or answers to the same question or requirement, leaving the lender unsure of what the information is trying to tell them.
Key takeaway: Reconcile your numbers. Go through your draft submission and make sure there are no inconsistencies from one set of statements or forms to another and that the information is consistently described and presented accurately.
- When asked to provide business plans, applicants tend to default to some template for writing or outsource the whole requirement all together. While most business plans contain a wealth of information, they tend to fall down in one key area … market analysis and the related business forecasting that works off of the market assumptions. The typical market description falls along the lines of “the market is really big and we are only after a small percent, so it shouldn’t be hard to get”. Remember that there are only three ways to get more sales: 1) market growth, 2) steal share from competitors, 3) combination of the first two. The more specific as to where your future business is going to come from and how you’re going to get it is one of the weakest areas of most business applications.
Key takeaway. Make sure you answer the following questions: what is your plan to market your business and what is it based on? Customer or prospect letters of intent, conditional purchase orders, and market research clearly stating what certain segments of your market want make your projections and assumptions more believable as well. And all income and expense assumptions should be supported by unique and clear logic that can be substantiated if required.
Many business owners feel like spending too much time on a business application is a waste of time, and that can be true if the business case is easily supported. On the flip side, a poorly prepared application package or one that is thin on pertinent information is not likely to get you anywhere, even if the actual business can support the debt being requested.
A business financing application is also a reflection of how you attend to business and the level of detail you invest in managing the business and managing risk.
For a new financing source, its also the one chance to make a first impression that could be lasting.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingCommercial Financing Applications Need To Take A Different Approach
March 27th, 2010
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.
Business Financing