Posts Tagged ‘Secure Capital’

“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

Technorati Tags: business debt financing, Business Finance, Business Financing, business loan, business loans, Debt Financing, Secure Capital, securing capital

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.

Technorati Tags: Business Finance, Business Financing, business loans, Secure Capital, securing financing

We hear so much about the collapse of the U.S. sub prime residential market, but we don’t hear a whole lot about what I refer to as the global business sub prime lending market.

For business financing, there are three basic levels of financing.  The first level is for “A” credit and where corporate finance mostly lives.  Then there is the “B” level or sub prime level for slightly higher risk situations followed by the “C” credit level which is asset based lending.  There can be forms of asset based lending that are more A or B in nature, but for the most part asset based lenders lend strictly on the liquidation value of the assets.

In March of 2010, the “A” type lenders are still largely sitting on the fence and not lending out much money.  Most of their time is being spent trying to figure out what to do with all the customers that are behind or offside with their financing covenants.

The C lenders are lending, but the rates are high, and because their is so much used equipment and real estate flooding the market, the assessment of liquidation value, upon which the amount of financing that can be provided is determined, is very low producing much lower amounts of capital than the business owner is expecting in most cases.

And then there’s the B, or Sub debt lenders, who have basically vanished from the scene.

So right now, if you’re a business that just come off a bad year, but have pretty good options ahead of you, the types of financing options available to you are going to be limited.   In most cases, the only options that are actually lending money will be asset based lenders, and they will be taking a big bite out of your available equity with large debt service costs.

Business owners, for the most part, have not adjusted to this market shift and are still looking for cheaper money that isn’t available right now.  It is a hard decision to take on higher priced debt, but if you can make the math work in your cash flow, 2010 may be more about survival than profitability.

If you are in need of Business Financing, give me a call and we can discuss your options in more detail.

Click Here To Speak With Business Finance Specialist Brent Finlay

Technorati Tags: Business Finance, Business Financing, Cash Flow Management, Secure Capital, sub debt market

As I have mentioned many times previously, the process of seeking capital for a business is largely an unplanned event in that 1) it is assumed that the  process for securing business financing will be easy, and 2) that it won’t take long.

When reality sets in, then there can be an all out panic to try and locate financing sources before time runs out on a particular deal.  If this occurs, then the business owner or manager may start working with multiple lenders and multiple agents all trying to find money in time.

This would be the wrong approach for a number of reasons:

First, commercial business financing deals can be a lot of work, and if relevant lenders find out that everyone and his uncle is being asked for financing, some of the better options will immediately decline from the party as they are not interested in doing a whole bunch of work for a small chance of reward.  There can be considerable due diligence that goes into a commercial deal as compared with buying a house or a car and as a result, market shopping is frowned upon by lenders.

Second, to get a deal done in a compressed period of time can require a great deal of attention and effort on the part of the borrower to get everything lined up for lenders, lawyers, accountants, insurance providers, appraisers, consultants, and so on.  If a borrower’s efforts are diluted among various scenarios, the probability of success is going to go down.

Third, there are likely only a hand full of lender options that are even relevant to any particular deal.  Critical time can be wasted on chasing the wrong options due to the business owners lack of understanding of who can provide what in the time required.

Lets look at the right way.

If you have a significant sized deal at stake and you’re under a time pressure, your best bet is to first go to your primary lender to see if they can provide what you need.  If that isn’t possible, then you should spend your energy locating a suitable business financing specialist who can quickly zero in on the best available options for your particular deal at that particular point in time.

Lenders and investors are always changing their level of interest for different types of deals based on changes to their portfolio or the economy.  A lender that was relevant to a certain type of deal in a certain location 6 months ago is not guaranteed to be interested in the same deal today.

Talk to a few different financing consultants to see which one can best address your needs and then pick one and only one to work with.  Working with multiple consultants and brokers is just as bad as contacting all the lenders in the phone book yourself for the same reasons mentioned above.

After going over your options with a financing expert, pick a strategy and stick to it so that your efforts are not diluted by too many different lending or investing scenarios.  Once chosen, manage the heck out of your best option and keep you fingers crossed.  Many times success is in the details and providing all your efforts into a solid option can be the difference maker in getting financing in place in the time required.

Keep in mind that hunting for money with a rifle is usually more effective than a shot gun.

For more information, go to Brent Finlay’s guide to Business Financing.

Technorati Tags: Business Finance, Business Financing, looking for money, Secure Capital, securing capital

If  you’ve been in business for awhile and you have a sizable line of credit with a major bank, say for at least $1,000,000,  you may have been going merrily along with your business without ever having any real issues with your banking facility.

Every year, your making a profit, meeting your banking covenants, and having a game of golf or two with your bank manager.  If there are a few bumps in the road, they are typically handled without much problem and you feel pretty secure in your banking relationship.

This tends to be a pretty common scenario for businesses in operation for more than ten years and generating $5.0M plus in annual sales.

Now comes a long the worst recession since WWII.

In fact, its the first real recession in 20 years.

Banks have slowed down and in many cases stopped lending all together.  Bank portfolios that are weighted in some of the harder hit sectors have taken a beating.  As a business, banks are inwardly focused and taking care of their own business.

Its at times like these that business owners can develop a false sense of security with their banking relationship and even believe they have some influence or clout with the bank based on many years of paying for bank services.

But in times of recession, all bets are off.  Every man for himself and all the rest of that jazz.

Senior lenders, almost without exception, provide Business Financing for working capital and equipment on a demand basis.  We don’t think much about the demand loan terminology until its actually applied.

If a banks portfolio is going in the wrong direction and your portion of the balance sheet is viewed to be higher risk, then your senior lender may decide to demand repayment of your loans …or… provide additional security to lower their risk.

Sound familiar?   In North America, banks have choked the money supply and asked governments to help them better manage their risk through guarantees or pledges of assets.

Talk about having you over a barrel.  And they do.

So when your senior lender calls you up and says they need to improve their security position or they will be forced to reduce your line of credit or call your loans on demand, what choice do you have?

You can try to move to another Senior, but in the middle of a recession it may be very difficult if impossible to accomplish.

You can move to an asset based lender, which may very well be possible to achieve, but likely at higher rates.

You can see if they are bluffing and refuse to sign off on what they’re asking for.

Or you can cave into their demands and hope they don’t call everything anyway once they are in a stronger security position.

This can be scary times for many business owners, especially if you’re offside on any of your bank covenants, in which case, there will surely be requests for additional security, reductions in facilities, higher rates of borrowing, demands for repayment, or some combination of the above.

This is part of what comes with cheap money.  Senior bank facilities are traditionally the lowest cost source of financing a business can have.  Security can be based on assets like inventory that really don’t have any security value to the bank, but are still leveraged based on the strength of the overall business and the overall economy.

When times tighten up, like they are right now, senior lenders tend to hold their cards close to their vest and can be very unpredictable.

The best way not to draw their attention in recessionary times is to keep a low profile, and above all else, make sure you understand and meet your bank covenants.

And if they start talking about changes required with your banking facility, take them very seriously and weigh the pros and cons carefully before making any decisions.

Technorati Tags: Business Finance, Business Financing, business lines, business loan, Secure Capital, securing capital, senior lenders

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.

For more information on business financing, click here.

Technorati Tags: Business Finance, Business Financing, business loans, Secure Capital, securing financing

While not everyone has a December 31st year end, most small and medium businesses do, and with the middle of January quickly approaching, here are some things to consider with respect to business financing and year end financial statement preparation.

Keep in mind that this advise applies to any fiscal year end.

Whether we like it or not, the process to Secure Capital is largely driven by the historical financial statements of the business.  And financial statements that are less than 6 months old have more lending value than those greater than 6 months since the end of the last completed fiscal period.

And while the required filing of corporate income tax and the related financial statements is typically not required until 6 months after the year end is completed, there may be significant reason to get this completed sooner.  Here are two reasons in particular to consider.  You need incremental financing for your business or you’re planning on requiring more Business Financing in the near future.

The first thing to consider is the profitability of the income statement and the leverage of the balance sheet.  If the income statement shows profit capable of servicing incremental debt and the balance sheet has enough equity to support additional debt acquisition, the you will have a powerful asset to assist with securing capital once the financial statements are completed.

Here’s some other things to consider.

If you’re applying for financing after year end but before the year end financial statements are completed, then its highly likely that a lending facility will not be put into place until the accountant gets the statements finalized and filed.

If you plan to wait until the financial statements are completed 6 month after the year end before applying, remember that the financial statements are now effectively 6 months old.  If the lender’s assessment process takes some time to complete, the lender may turn around and ask you to get a 6 month interim financial statement completed, creating what could be a significant delay to your plans while increasing your accounting costs.

Even if you have no immediate need for incremental financing, you may want to consider how to best utilize a strong financial performance of the year past in terms of Business Finance and the relate costs.

For one example, you could utilize a strong year end to help leverage better terms at your bank by shopping around to the competition.  Rarely will you have better leverage to secure better rates and terms that when you have strong financial statements.  And you may even be surprised at the competitive offers that come back which may prompt you to make a move.  With out freshly prepared financial statements from a strong year of operating performance, this possibility is going to be a lot less likely.

Another situation to consider is leveraging a set of strong financial statements to increase your credit limits or add credit lines.  You would be basically trying to secure financing you don’t need or are not planning to use but may end up using if you’re having an off year.  For a seasonal business, this scenario can play out more often than not over a long enough period of time.

I had a client with a seasonal business that was highly profitable and dependent on winter weather.  They had great credit and had very well established short term and long term financing with a chartered bank.  Then one year there wasn’t severe enough winter weather for their business to operate (first time in over 20 years of business history).  At that moment of cash flow crisis, it was not possible to borrower more money and everything that was built up over the years was put in jeopordy.

You’d think that a bank or any lending partner could see past this anomaly in financial performance.   In most cases they can’t or won’t, so its up to you to create your contingency ahead of time and one way to do so is by increasing your available credit when the opportunity presents itself.

On the flip side, if the financial statements are not going to be profitable, there is likely no rush in getting them completed sooner than later.   And if the bank requires copies, you may want to wait as long as you can so that the business results can improve prior to providing the historical results.

Technorati Tags: Business Finance, Business Financing, business loans, Secure Capital, securing capital, year end financial statments

If You’re Trying To Secure Capital In Q1 of 2010, Here Are Some Things To Consider

First of all, Happy New Year to everyone.

The page has turned and we are now into a 2010 Business Financing environment, quarter number one.

Now many of you may ask, what difference does a few days make from the end of December, 2009 to the beginning of January, 2010?

While the differences may be subtle to some, there is a definite shifting of gears from a Business Finance point of view and can have a significant impact on your ability to Secure Capital and your cash flow management.

If you’re either in the process of securing business capital, or just starting and you have a December 31st year end, many lenders will not provide you with an approval for funding until your Dec. 31, 2009 financial statements are completed.

Yes, even though the required filing of your annual statements is probably not until the end of June, 2010 (depending on your country of tax jurisdiction), your chosen source of financing may require you to do it much sooner.

Once the calendar turns to January, accounting firms enter their busiest period of time related to December fiscal year ends and personal income tax filing requirements.  So if you need your business financial statements done quickly, you’d better get the work booked with the accountant as quickly as possible and also make sure that you have all your own information up to date so that the process does not get delayed.

For Debt lenders that have December 31st year ends, January marks a new fiscal period of them as well where they will have new budget targets and potentially new programs and lending criteria to apply.  The key point here is that whatever they were doing in December with respect to loan approvals can be very different in January.

Banks and other debt lenders are going concern businesses trying to manage their profit pictures and balance sheets just like everyone else.  So if a debt lender with a Dec. 31st year end enters their last quarter below budget and targets, they are likely going to be more aggressive in their lending practices in the last quarter, all things being equal.

If the lender is way ahead of targets in the last quarter of 2009, they may become very conservative in their approval process for the remainder of the year in an effort to bring higher quality loans onto the books that will improve the risk rating of the overall portfolio.

On the flip side, the start of a new year can trigger a conservative lending approach whereby lenders try to see if there are enough low risk deals out in the market place to meet their goals.  If this doesn’t prove to be the case, then lending criteria will likely loosen up in Q2 and Q3.

There will also be lenders that have January, February, and March year ends where the same type of thinking can apply in each case as managers work to hit their numbers.

In business financing, timing is everything and when the year changes over, there are likely going to be some noticeable differences that will impact your capital procurement efforts.

Technorati Tags: Business Finance, Business Financing, Cash Flow Management, Secure Capital

Cash Flow Gap Management Can Be The Key To Growth And Stability

For this discussion, I define cash flow gap as the difference between the timing of cash inflows and outflows.  For instance, if your supplier terms are 30 days and your customer terms are 60 days, you will have a cash flow gap to fill with some form of working capital financing.

Even if the terms are equal, there could still be gaps or delays between the time an expense incurred needs to be paid and when the revenues related to the incurred expense get collected.

Some operations are fortunate in that they don’t have a cash flow gap at all.  However, in most business cases, there is a need to finance gaps between inflows and outflows on a regular or semi regular basis.

The working capital financing can come in the form of cash from the business itself, an operating loan that is connected to the business bank account and goes up and down as required, shareholder loans, term loans, factoring of accounts receivable, inventory financing, and so on.

For profitable operations, the financing of a cash flow gap is temporary in nature and is effectively bridge financing where the beginning and the end of a cash flow gap is clearly defined.

For operations that are currently unprofitable, the cash flow gap actually creates a longer term liability as the loss position must be covered off from financing for as long as its required for the business to get back into a profitable position and repay the debt.

The keys to managing the cash flow gap are as follows:

• Work to match up the days outstanding for trade payables with the days outstanding for accounts receivable.  Gaining a few days through closer management will reduce the cash flow gap.
• If you work on projects, try to match the project costs with the related expenses when negotiating terms and making payments.  If a supplier is aware of the project they are supplying for,  make sure they understand that they will get paid when you get paid.  Suppliers are more likely to work with you on payment delays if they know you are matching the revenues you receive to the project.  In order to make this an effective strategy, make sure you are only working with credit worthy customers that the supplier will be comfortable with.
• Assess the benefit of payment discounts versus available working capital.  Taking advantage of an early payment discount from a supplier will actually increase your cash flow gap, but this may be worth doing if you have the working capital available and the cost of the working capital is less than the discount you will receive for paying early.
• Forecast out your cash flow for at least 6 months.  If you’re in a growth mode or in a seasonal business where sales spike, make sure you understand when cash flow gaps will occur, how much capital they will require, and how long they will last.  If you’re going to require more capital than you now have available, you’re going to need some time to Secure Capital prior to the period of need.
• Focus on higher margin products and services to offer.  If the cash flow gap is increasing, it may be negatively being impacted by growth in lower margin products and services, or a change in your mix that has lowered your overall margins.  Again, good forecasting and periodic sales review should help identify the size, timing, and duration of cash flow gaps as well as their causes allowing you to take proactive measures to avoid the business being negatively impacted.

Technorati Tags: cash flow gap, cash flow gap management, cash flow gap. cash flow, cashflow, Secure Capital

Business Finance Planning Involves More Than Taxation At Year End

Being that we are now in the first week of December,  many business owners with December 31st year ends will be or should be projecting what their financial statements will look by the end of the month in order to have the opportunity to improve the final results in the coming weeks.

Traditionally, a year end planning process is for taxation, and taxation purposes only.  While tax planning is definitely something that should be seriously looked at this time of year if you have a December year end, there is another aspect of business finance that is mostly overlooked in the process by both business owners and their accountants.

The year end financial statement that typically gets prepared up to 6 months past the end of the actual year end, is a very important and arguably the most important element of a business financing package for an existing business.

Sometimes in the pursuit of reducing income taxes at any cost, business owners create other problems for themselves in the areas of securing capital or maintaining the capital they now have access to.

For an oversimplified example, business financing problems can be created by income statements that show no or low profitability and balance sheets that show no or low retained earnings.

In many cases, year end tax planning activities will occur to either spend more on future needs to reduce the net tax position at year end or move profits out of the company to optimize both the business and personal income tax positions of the owner(s).

While these types of actions may very well result in considerable taxation savings, they also end up painting a less than flattering financial picture for the business for the period just completed.

Logically, one could argue that lender or investor would be able to understand these actions and take them into consideration when reviewing the financial statements.  Unfortunately, logic doesn’t have much to do with it.  The financial statements are in almost all cases related to business financing, taken at face value.

As a result, two potentially negative outcomes can occur.

First, for the business that currently has Business Financing facilities in place that require specific financial covenants to be upheld, the year end tax planning activities can potentially cause a business not to meet some of the covenants which could result in the lender calling in the loans or taking some type of corrective action.

Second, for a business trying to secure incremental capital, the year end financial statements may not show the ability to repay the debt or show a debt to equity position that can support a greater level of borrowing.

Both of the above scenarios can be disastrous to a business, where at the least significant opportunity is forgone, or at the worst, the business cannot cash flow its operations and ends up closing down or going bankrupt.

To avoid both scenarios, the year end planning process, either for a December 31st year end, or for any other year end date, needs to take into account how the final version of the financial statements will impact all Business Finance aspects of the business (taxation, Cash Flow Management, ability to secure capital, and so on)

To some degree, taxation can actually be looked at as a financing cost, as failure to pay taxes or have taxable earnings, may limit or restrict the business from acquiring and maintaining business capital, especially lower cost debt instruments.

Technorati Tags: business finance considerations, Business Financing, Cash Flow Management, Secure Capital