Posts Tagged ‘business loans’
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: How To Secure Business Loans
June 30th, 2010
“Business Loans For Small and Medium Sized Business Are Secured By Preparation and Presentation”
There is an abundance of information on the web telling you how to game the system to secure a business loan or business credit, or how if you buy this book or pay this fee in advance, even the most clueless business person, or wannabe business owner, with the worst credit can secure business financing in no time flat.
Come on!
Yes, there are certainly ways to game the system. And you can get away with some sneaky credit application strategies that can get you lines of credit and term loans.
But like any loan, if you don’t have a solid plan to pay it back, you’re going to go into default on your repayment obligations and then what?
The path to financing a new or existing business starts with preparation. All businesses carry risk, and the people who lend out money want it back plus a return. So the inherent risks associated with any venture need to be understood and managed or why would anyone in their right mind issue a business loan?
For those that do issue questionable business loans, they don’t tend to do it for very long as risk catches up to the borrowers and the lenders portfolio turns to dust supporting the saying that a fool and his money are soon parted.
Preparation also helps the borrower better understand what he or she is getting into and perhaps may end up talking themselves out of getting a loan once they stand at a place where a truly informed decision is being made.
Unfortunately for many, preparation takes work and its far easier to plow ahead with an idea versus a well thought out strategy and tactical execution plan, find any source of money that can be had, and give it a go.
Good luck with that approach.
The other side of preparation is presentation. A lender or investor not only want to see that you thoroughly understand your own business or business opportunity, they also want you to convey the information in a form that they understand and can easily relate to.
Too often presentations provide excessive opportunities for lenders or investors to make assumptions or draw conclusions that may not be accurate or valid. This is a great way for an otherwise “finance-able” business loan request to get turned down.
Business loans aren’t easy to secure most of the time. There is art and science involved in the process of Business Financing procurement. Short cuts tend to lead to disaster more often than to success.
If you’re planning to be in business for the long haul, then its important to learn about, and constantly become better at, business loan preparation and presentation.
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
Destroying Your Ability To Borrow Money
June 10th, 2010
For businesses that are otherwise profitable, there are a number of ways that a business owner can destroy or dramatically limit their ability to borrow money.
If a business is generating a positive cash flow over time, then it should be able to get Business Financing from the cheaper sources of business capital without too much difficulty provided that there is a valid business application for the funds being sought.
However, this is not always going be the case due to the lack of attention paid to certain key requirement that most sources of business credit are going to require.
The most common way to destroy a businesses ability to borrow is poorly managed personal credit. Even when a business itself has strong credit, the personal credit rating of the business owner or owners can destroy certain financing options. Why? Because even though a business has a good balance sheet and cash flow, the lower cost sources of financing expect the person or people in charge to be responsible with all types of credit they have to manage. Many lenders believe that your credit score is a reflection of your character and your commitment to meet all your obligations in a timely fashion. Sloppy credit with a string of regular late payments can lead to automatic decline for a request that would otherwise be approved.
Another major way to limit credit availability is to not upgrade your accounting review as the business grows in size. For example, beyond lending a few hundred thousand dollars, there will be lower levels of commercial lender interest in larger requests when the business is only providing notice of assessment statements.
Taking the financial statement aspect one step further, many banks and other lending institutions will only make lending decisions on financial statements that are less than 6 months old. Because corporations don’t have to file returns until 6 months after the year end, as soon as they are available to provide to lender they will already be too old to support a request for financing to certain lenders.
Institutional lenders will also require financial statements to show repayment ability of future loans and credit obligations. If the business owner has taken an approach whereby the tax level of the company is reduced to near zero and the available cash is stripped out of the business on a regular basis, an otherwise strong company will have a hard time borrowing money based on these practices.
There are many other habits and practices that work against a business’s ability to access capital. Failure to manage all the relevant elements will destroy potential financing options, increase rates, and make timely acquisition of business capital very difficult to accomplish.
Click Here To Speak Business Financing Specialist Brent Finlay
Debt 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
The Business Financing Prime Rate Is A Bit of An Illusion
March 24th, 2010
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.
The Business Financing Landscape Has Changed … Get Used To It.
March 21st, 2010
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.
Debt Financing Sources Are Like Shifting Sands
March 10th, 2010
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
Small Business Startup Financing Is Personal Financing
February 24th, 2010
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.
Business Financing Tradeoff – Lower Taxes Versus More Borrowing Power
January 14th, 2010
I’ve written a fair bit lately about the importance of financial statements and their importance to business financing activities, especially after the year end.
One of the biggest challenges with getting the most financing power out of your financial statements is to have a tax planning strategy that is in line with your Business Financing strategy.
Too often, accountants will go through tax planning strategies in a bit of a vacuum, not having any knowledge or appreciation of what the business will require for capital or what if any refinancing will need to take place in the year ahead. Even if there isn’t an immediate capital need that’s planned, there still is the consideration of things that could unfold and allowing for their potential capital requirements.
And when financial statements are optimized for tax purposes only, they can reduce and potentially destroy your ability to borrow incremental capital in the process.
Effective tax strategies can lower net income which is required for debt servicing and lower retained earnings, which will reduce the amount of equity on the balance sheet available for financial leverage.
What confounds the whole process even further is that each lender will have their own series of add backs and adjustments to income and cash flow that may or may not be impacted by certain tax strategies.
In reality, paying taxes can be viewed as a cost of borrowing in that if the business is not in a taxable position, it won’t have the financial results necessary to acquire and service debt.
So how do you optimize the financial statements for both taxation and financing at the same time? This is a bit of a difficult question to answer due to all the unknown variables involved on the business financing side.
One approach to consider when the business is actively seeking capital prior to the completion of the year end financial statements is for the accountants to prepare a draft version based on the collective best guess work of the business owner and their third party accountant as to what level of earnings would be acceptable to the target lender or investor.
The draft version can be put forth with the financing application and if an approval can be secured based on these numbers, the statements can be finalized as written. If financing can’t be obtained for the sought after terms and condition, the draft financials can be further adjusted to optimize the tax position of the business if appropriate and finalized via a revision.
There are other approaches to consider. Just keep in mind that in order to get the best result for both taxation and capital procurement potential, the business owner and manager need to make sure that they provide their taxation expert with their forward looking plans and capital requirements so that some effort can be made to allow for both requirements if necessary.