Posts Tagged ‘capital providers’

Business Financing Sources Can Be Hard To Pin Down

Most things you try to acquire have some type of regular and predictable supply. Some products and services are readily available while others may require lead time to order or restock. And even if someone goes out of business, there is typically another vendor to work with.

Furthermore, process for acquiring a product or service, the terms and conditions of use and so on, also tend to be easy to locate.

If it was only so easy when it comes to securing capital for your business.

While the vendors may be easy to recognize, the process for acquisition and the determination of availability may be very difficult to figure out.

Lets looking into the key reasons why.

1. Sources of Business Financing get the majority of their capital for lending or investing from other sources of financing, which can be further leveraged down the line. If the “up line” sources reduce supply or increase the costs, there is a trickle down effect that is very hard to predict at a local borrower level. Sometimes retail lenders are shut down completely because of a major source no longer extending supply.

2. Capital providers manage a portfolio of placed accounts. Portfolios are continuously adjusted based on the economic outlook for different sectors. If a particular sector is becoming too large a part of the overall portfolio to create “risk imbalance”, then the capital source will stop providing new funding for that sector and may even call in loans or sell off what would normally be considered a well performing asset to reduce concentration.

As an example say that a business owner or manager requests construction industry financing in January from a preferred lender and that financing is approved and disbursed. If the exact same request was made 6 months later, there is no guarantee that an approval would be forth coming, which could be based on the industry, overall portfolio risk, and so on. Supply is not going to be constant.

The rules aren’t constant either. Perhaps the same request 6 months later can still get approved, but more security is required or a smaller percentage can be approved, or tighter terms and conditions accompany the approval, or rates are higher to reflect a higher perceived risk.

Total moving target.

3. Humans are involved. While financial companies providing capital have policies and criteria to follow, the decision making process is managed by individuals. When the individuals involved change, the decision outcome can change… even though nothing else may appear to change from one deal to the next. Even if personnel doesn’t change, many lending organizations operate with a rotating desk of underwriters who are assigned applications at random. All things being equal, different underwriters can come up with different lending or investing decisions on the same file.

4. Economic outlook. At the time of writing, we are near the end of 2009 and still in the middle of the current recession. Many business financing sources continue to build their cash reserves to protect themselves against any potential losses that may occur in their portfolio from recessionary impacts. This is quite ironic in that their exact action of building cash ends up shrinking the money supply and creating the exact effects they are trying so hard to guard against. In these situations, supply of capital is not the issue … willingness to supply is.

5. Time Of Year. A financial organization that provides capital for loans or investments operates as a business within an annual business cycle like any other business. At the beginning of a fiscal period, lending criteria tend to be quite tight as organizations see if they can acquire lower risk assets. If by the second quarter, the “placement numbers” are off, the criteria can get loosened up to help meet targets. As the end of the fiscal period draws near, nothing but low risk loans or investments will be considered if the company has already achieved its budget. The opposite would take place if the budget still had to be made.

So when you’re looking to secure business financing, regardless of your previous experiences, remember that your success will always hinge on how all of the above comes together at any point in time. Put things off a couple of months and the rubics cube could look totally different.

Technorati Tags: Business Financing, business financing sources, capital providers, financing companies, investors, lenders

Be Direct And Specific When Trying To Secure Business Financing

Before you speak to a debt financier or equity investor about securing capital, you should have gone through the process of pre-qualifying them to some extent to make sure they are relevant to your business financing requirements.

When you go to speak to a source of business capital, its their turn to qualify you and the sooner you allow this to take place, the faster you’ll get their serious attention.

Too often, business owners and managers start off their initial discussion with lenders or investors with a long winded explanation of their business opportunity or business potential, trying to impress the capital provider with what they view is the best approach to securing capital.

Instead of creating a good first impression, they are more likely to put the capital provider to sleep as the provider impatiently waits for the business owner to disclose the pertinent initial information they require to perform their initial assessment of the Business Financing opportunity.

Seeking business capital is a marketing exercise and like any marketing approach, the goal is to provide the target audience with the information they are interested, not the information you feel they should be interested in.

So here’s the best way to get off on the right foot with a debt or equity financier.   This approach may also get you a fast No as your audience will be able to qualify you faster, but at least you won’t be wasting your time pitching a lost cause.

Start off by stating exactly how much capital you’re looking for, why its required, and how exactly it will be applied in your business.  While this may seem obvious, its rarely the beginning point of business owner presenting to a lender or investor.  The primary reason being that human nature seems to think that if a compelling enough business case can be created right off the bat, then the amount of funds requested and the application will be secondary in nature.

In reality, by not being able to immediately describe in financial terms what capital you seek and why, you’re more likely to leave the impression that you don’t have a buttoned down plan of action that has been summarized in financial detail, regardless of the raw potential of the proposed investment.

When you lead with a detailed summary of your financial requirements, you’re not only allowing the capital provider to see if you fit into their current criteria, but you’re demonstrating to them that you have gotten a well thought out plan of action that can be accurately described in terms of numbers.

This is a great way to get serious attention from a debt or equity provider who are inundated with dreamers and entrepreneurs either weak at or uninterested in the underlining financials and corresponding stewardship that goes hand in hand with gaining access to someone elses money.

Once you’ve established what you want and why, the lender or investor will be able to make their initial assessment and either give you a fast no that you would have gotten anyway, or start moving forward in their seats with a higher level of interest.

We will address the next phase of the your initial discussion in tomorrow’s post.

Technorati Tags: Business Financing, capital providers, Debt Financing, Equity Financing, secure captial