Timing Can Be Everything When Seeking A Business Loan

When Trying To Land A Business Loan, How Picky About Your Terms Should You Be?

When opportunity comes knocking on your business door, you want to answer as quickly as possible and try to take advantage of it, right?

I mean, you’ve done your diligence and have decided that you have an opportunity to go after.  There’s just one problem…you need a business loan or some other form of business financing to make it happen.

No problem.  You just go down to your bank and get a business loan, right?

That may very well be how it goes down.  But before you even go ask, here are a few things to keep in mind.

The process of securing money is 9 times out of 10 time consuming, even when you go through well established relationships.   And any inquiry to a new lender will likely take longer than to an existing lender, all things being equal.

Plus, the nature of business financing decision related to business loans can be influenced by the lenders portfolio at a given point of time, their policies, staffing, the weather, and who knows what else.

The point here is that its hardly ever easy and fast to get your hands on business financing of any type.  Yes, it happens, but its not what you can expect on average.

So time is money when you’re trying to take advantage of an opportunity that may very well have a shelf life.

The second point to remember is that the first business loan terms you secure might not be the best that you could secure at a given point in time.  This really can be a profit killing brain buster.

Many times business owners and managers will not accept a business loan believing they can do better, which they very well could, but end up putting off the opportunity for 6 months or more searching for the best business financing deal.

Ugh!

What would you rather do, make an extra $100,000 a year or save yourself $5,000 in interest costs?

I personally hate the term no brainer as something can always go wrong with anything whether you have a brain or not, but this is as close to one as you’re going to get.

Of course you don’t want to accept anything with crazy terms that are going to back you into a corner or cause other problems.  I’m talking about simple stuff like interest cost, which can add up to large dollars, but don’t impact your ability to get going and take advantage of your opportunity.

It may seem ridiculous that you can’t always secure business loan terms you should qualify for in the time period you want, but that’s the way the commercial money system can work.

Bottom line, if you can get reasonably close to your expected terms for a business loan and get making money faster, you will likely be miles a head of the game versus holding off making money as you search for cheaper and/or better term money.

At the end of the day, when you’re sitting on some beach, enjoying the benefits of the money you’ve been able to make by moving fast on opportunities that presented themselves, are you really going to look back on things and think, boy I paid $20,000 too much on interest on that deal that made me over $1,000,000 10 years ago?

I don’t think so.

Small Business Financing Possibility Versus Probability

Several times each week, I talk to small business owners who are seeking capital for their new or existing business and several times I have a very similar conversation with each of them that I thought I’d share today.

At the beginning of the conversation, I always ask the same two questions:  How much money are you looking for? what’s the purpose of the funds?

I would say that at least 75% of the time, I have to re-ask these two questions two or three times before they’re answered.  Most people think that telling me a long drawn out story of what they want to do and how they came to do it will be more important than answering these two questions.

What tends to come out after a few minutes is that the individual is hunting for what I call stupid money.  You know, the kind that is prepared to write you a check on a very thin and likely non existent business plan where the lender is taking all or close to all of the financial risk.

Example.  Someone has a great idea for a tennis equipment store.  They have picked out a location and now need $300,000 for start up costs, working capital, and inventory.  They have poor credit, personal debt, zero net worth, and no capital to contribute to the venture.

Is it possible that this individual could secure small business financing of some sort? Yes.

Is it probable? No.

That’s the great thing about the money business, virtually anything is possible, and I’ve seen enough to know first hand.  After getting off the phone with me, this would be entrepreneur could go to the coffee shop, strike up a conversation with someone about his or her golf shop idea, and leave with a check in hand for the capital sought.  Is is possible?  Absolutely.  Is it likely to occur?  The odds would likely be lower than playing the lotto.

That’s why I’m always careful to not generalize about small business financing, as there is an infinite sea of money out there and strange things happen all the time.

But lets also get real.  Just because its possible, doesn’t mean your new business financing strategy is to start going to coffee shops.

For the most part (can never generalize), money has a basic intelligence.  If intelligence is not applied, the source of money will disappear very quickly based on making bad decisions.

People supply money to business ventures for a return.  If you can show them a path to the return they seek within the level of risk they’re prepared to take, then eventually, you will find a source of capital for your small business financing requirements.

And here’s my tip of the day on this subject:  You must have something to leverage and something to lose in order to have a realistic probability of getting business financing, whether it be for a new venture or existing business.

Something to leverage for low risk credit is your credit score, personal net worth, external cash flow, third party guarantee.  Something to leverage for higher levels of credit risk would also include things like asset security, established cash flow, signed purchase orders from reputable companies, patents, intellectual property, contracts, etc.  Remember also that something to leverage has to have a value to the source of money or there is no leverage.

Something to lose is at the very least the capital that you directly invest into the venture.  100% financing of anything is quite rare unless you’re taking about residential real estate and look what problems that has caused in the markets over time.  Personal guarantees and corporate guarantees would also fall in this category if there was enough net worth to make them meaningful.

As the amount of leverage and borrower risk increases, so does the probability of securing capital.

Click Here To Speak Directly To Business Finance Specialist Brent Finlay

business finance specialist.com

Why Is Business Finance Hard To Understand – Part II

In part I, we started into the discussion of why business finance tends to be difficult to understand for most people, even though its relevant to everyone to some degree.  Now, let me get into how this relates to you as a business owner or business manager.

I left off talking about the apparent communication gap between finance tacticians and the rest of the world.

I also mentioned how when you’re in business for yourself or managing business for others, you can be very much at the mercy of your advisers when it comes to matters of finance.

Does this mean you shouldn’t utilize advisers?  No, I’m definitely not saying that.  Experts in various financing disciplines can be absolutely critical to your business success.

So, lets summarize what we know so far.

–  Business finance can be hard to understand, comprehend, and apply.
–  Its an essential part of any business venture
–  Leaving too much decision making up to your advisers can be dangerous.
– There is a long standing communication gap between finance experts and  everyone else.
–  99.9% of the world have a very limited understanding of finance, how it works, and how they can more effectively utilize it to increase their wealth.

From a business ownership/management point of view, there should be a strong motivation to correct this trend, and I think there is, but few people understand how and continue to muddle through what already doesn’t work very well.

So what’s the solution?

Like anything else in business, the owners and managers of any business need to control and direct the forces of the business to be successful.  When it comes to finance, its hardly practical to advise or expect non financial managers to develop a deep understanding of business finance in order to get greater value.

Most Entrepreneurs will have a primary focus on marketing, which they should as marketing is the #1 most important activity in a business.  But finance is #2 , and is the counter balance for marketing.  Look at any large scale business and see how they’re organized – marketing on one side, finance on the other.

So the answer is not to become expert at something you may not be good at or have an aptitude for (basically going against your wiring).

The answer lies in your approach and commitment to maintaining the necessary chi like balance between #1 and #2.

Can I have a drum roll please.

The secret to optimizing the finance component of your business is to connect all finance activities  into the three core business finance objectives that apply to any and all businesses regardless of size, structure, or country of origin and then make sure they are congruent and supportive of the overall business objectives of the organization.

Wow, that’s a mouth full.  And hardly more enlightening at this point.

But stay with me as all will be explained in the next segment.

I will reveal these three core business finance objectives in part III and further explain how they relate to the broader organizational objectives (and show you that its not even that hard to do once its been explained in a little more detail).

Click Here To Speak Directly To Business Finance Specialist Brent Finlay

businessfinancespecialist.com