Business Financing Realities

“Proper Expectation, Process, and Focus Are Keys To the New World Of Business Financing”

I had two very similar calls this week from business owners in search of business financing for a project in their respective companies.

The individuals had applied for financing at a financial institution and had spent months now trying to get an approval so that funding could be put into place.

Both were now at the point where they were starting to run out of time and were now frantically looking around on the internet for either a replacement solution or a bridge financing solution that would buy them enough time to get the desired funding in place.

I also get similar versions of this call all the time and I don’t expect much to change in the near future.

The problem starts with a fundamental lack of understanding of where we are at in the financial and capital markets these days and how debt financing sources and equity investors approach opportunities.

Sources of money are more particular these days as to what they will provide money for and how long it will take to make a decision and get funds in place.

Business owners still believe that if they have a good plan and a good story that they will be able to locate and secure funding without much trouble. Their basic mindset is “how hard can be be…or…how long can it really take?”

While there are times that the process of business financing can go fairly smoothly, My standard advise to anyone that will listen is that the its going to take longer than you think and its going to be more difficult that you imagine. If its easier than what I have described, then that’s a bonus, and you’ll be much further ahead of schedule, but just don’t plan for easy.

In order to get success, the approach you take and the process you follow is going to be very important. If you don’t understand what that means, then you’re going to need to invest in some help from those that do.

As far as focus goes, this was the main point I made to both callers.

Both individuals sounded like they had a workable situation underway. The key at this point was to focus in on what was required to get an approval in place and do whatever was necessary to buy time and comply with the lender requirements.

Starting a new funding request with a new series of lenders where time was already short would likely only serve to divert time and energy from the deal they needed to try and complete.

Yes, it most certainly is frustrating when a lender or investor takes their time getting back to you, or continually asks for more information or third party work to be done to complete their funding assessment. When the people you initially spoke with that were so keen to receive your application for financing and to assist your business now seem to be taking an inordinate amount of time working through their own requirements, it can be excruciating, especially if you’re on the clock.

And sometimes you also have to know when things are not going anywhere and then make a course correction. But typically when things don’t go anywhere in the world of finance is due to some combination of 1) talking to the wrong financing sources in the first place; 2) not properly presenting the information in a format and level of completeness acceptable to the lender or investor; 3) not having proper risk management in place to secure the deal; 4) not having enough time for financing process to be completed; 5) not staying on top of all the individuals that need to contribute to the application.

Unfortunately for my two callers, as soon as they hung up the phone with me, they probably called the next listing they found and put in a call. In most cases they will be greeted by a marketing person who wants to take a look at their file and see what can be done. In both of these cases, based on the information I was provided, this would only serve to take precise time away from trying to make what they already had going work…even more so if they make a few additional calls.

Click Here To Get In Contact With Business Financing Specialist Brent Finlay

The Business Financing Calendar

“Being Successful With a Business Financing Application Can Have A Lot To Do With The Time of Year”

If you’re going to apply for business financing from an institutional debt lender, the time of year can have more of an impact on your application that you may think.

Like any business, a commercial lender has a budget, a fiscal year end, and financial reporting requirements.

As of this writing, we are currently in the October or the start of the fourth quarter of the calendar year which will be the fiscal year for many of the lenders out there. This means that banks, credit unions, trust companies, pension funds, etc., will be getting their books in order for their up coming year end.

For commercial lenders where the year has allowed them to already meet their targets, the last quarter is going to likely be characterized by a stiffer application of lending criteria with the intent to only take on additional loans that will lower the portfolio risk. Debt financing is a business and the people that run these organizations are going to be working hard to hit their targets to earn whatever bonuses may be available to them.

On the flip side, if a lending institution has not hit its budget by the fourth quarter and is even potentially a bit behind, there could be an opportunity to see a loosening of the credit criteria in order to get more business through the door before the clock strikes midnight on the year end.

For debt financing sources that don’t have fiscal years that match the calender year end, the same circumstances can apply.

At the beginning of the year, its not uncommon for lenders to start out with a more conservative approach to see how much low risk business will come their way. By the second quarter, if lending is below budget, the reins can once again be loosened in order to try and hit the lending numbers that will pay the bills and potentially those bonuses.

From a business owner’s point of view, it can be difficult to determine who is lending and who is less likely to lend based on the time of year.

Just keep in mind that money will tend to flow the most free in the second and third quarters, all other things being equal.

While there is no exact science to figuring out how this can impact your business financing efforts, it can be a good idea to stay connected to financial consultants and industry experts that have a better sense as to what the main players are doing at a given point of time based on whatever inside or quasi inside information they may have access to.

Here in 2010, the market in general appears to have slowed down going into the fourth quarter. While it may be too soon to draw conclusions as to what to expect from different lenders for the next few months, its definitely something to stay aware of, especially if capital is going to be required for your business in the near term.

Click Here To Speak To Business Financing Specialist Brent Finlay.

How To Cut To The Chase When Securing Capital – Part II

Here is The Next Installment in How To Increase Your Odds Of Securing Capital From The Outset

In the last installment, we discussed the importance of starting off your initial  meeting with a prospective lender or investor by cutting to the chase and quantifying exactly what you’re looking for in terms of financing and what it will be used for.

Once you’ve given the lender or investor enough information to initially qualify their potential interest in the deal, you’re either going to get a quick No, or they’re ready to hear more.

Focusing on the later, you now want to continue your presentation.

The second area the lender or investor wants to understand is your future projected financials (cash flow, income statement, balance sheet) and the related assumptions that drive the numbers.

As an example, virtually everything in the business can be associated with a time frame and cost, so the financial statements become a powerful means to convey the business story you’re trying to tell.

The quantification of market size, competitors, market share, price, margin, operating costs, and so on, all impact the financial statements directly or indirectly.

And lets face it, this whole process is all about money and making more of it, so its important to show your potential source of capital funding how they will get their money back, over what time, and the potential return they can expect.

When you can quickly show how you have quantified all the relevant information into income, balance sheet, and cash flow, it gives the lenders and investors something concrete to wrap their heads around while proactively answering a lot of the questions they will have before they even ask them.

This information can be highly summarized.  Its just important that its covered off to maximize the interest level of those involved.

Too often, the business owner or entrepreneur is so completely focused on their sales pitch of what they’re trying to accomplish that the underlying financials are either glossed over, or not really addressed at all.

Remember that the more you can relate what you have to present back to dollars and cents, well quantified and supported assumptions, and realistic time lines, the more seriously you’re likely to be taken.

There is definitely a balance to be had between the marketing side of a presentation and financial projections.  Just make sure you know your numbers cold so that where ever the discussion goes, you will have the answer on the tip of your tongue.