Posts Tagged ‘securing 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

There is the temptation when applying for business financing to omit things that are negative and gloss over other things you personally don’t consider to be important.

The result is this semi-complete story of what you need financing for and the justification as to why it should be granted to you.

And while you could be well justified in not wanting to provide all available information, here are few things to consider when putting an application package together.

First, never purposely lie or exaggerate anything you put forward to a lender or investor.  If you ever get caught in a lie, regardless of the size, the game at that point is typically over as the lender or investor may no long view you as credible.

Second, never hold back information that would be considered material to the business or the financing facility being requested.   If something is material, then by definition it’s important and can cause an impact to other parties like providers of capital.

Third, provide what is requested as completely, accurately, and neatly as possible.   You can make judgment calls as to whether or not you wish to provide certain items, but this is also one of the fastest ways to get declined.  Remember that especially in the case of debt lenders, their financing requirements tend to be quite rigid.  If you can’t provide what they ask, then they will just pass on the opportunity.

Fourth, proactively explain all negatives that are most likely to be detected during due diligence anyway.  The best examples are negatives in business and personal credit reports.  The first thing a debt lender will do after receiving an application for financing is pull the applicant’s credit profile.  If there is no proactive explanation of any negative items that may appear, then the lender is left to draw their own conclusions.

Fifth, be conservative in your go forward estimates and have as much back up as possible to support your assumptions.  Too many times the application is lost at the point of proforma financial statements that don’t reconcile or are too “pie in the sky” for the lender’s or investor’s liking.

Nothing is worse than to be 90% of the way through a Business Financing process where the finish line is in sight, only to be declined close to the end due to some non disclosure or inaccuracy that could have been dealt with in the application without impacting the financing decision.

Making assumptions of what you think is important or germane, versus what the capital provider wants to review, can be suicide to a deal.  Providing near full disclosure, if at all possible, avoids this from being a problem.

And remember that even if you do manage to secure funding through what I’ll call creative disclosure, the longer you have the relationship with the lender or investor, the more likely the truth will be found out anyway.

If the capital provider has the ability to demand repayment, they likely will, potentially putting you into a major bind.

Recently I was working on a client’s financing request and had a business financing solution arranged twice, but got blinded sided both times when the lender’s due diligence turned up non and/or incorrect disclosure issues.

Not only was the whole process a big waste of time, but if full disclosure was provided from the start, completely different sources of financing would have been approached that were more relevant to the whole story.

Securing capital is all about the story.  But nonfiction is preferred over the alternative.

Click Here To Speak With Me Directly About Business Financing

Technorati Tags: Business Finance, Business Financing, securing capital

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

It drives me crazy and never fails to surprise me as to how business owners and managers approach securing business financing for their companies.

The thought process tends to leave the search for capital too long into the business planning process and when it’s finally begun the expectation is that it will be a relatively simple and straight forward process.

Some advise to consider would be starting the search for money sooner and even managing it into a path parallel to the business planning process its connected to.  The reason for this approach is that locating and securing the right capital can many times prove to be the most difficult element of any potential project.  Furthermore, as potential financing sources are uncovered, their related terms and conditions may require actual revisions to the business plan and the sooner this is known the more likely it can be allowed for in the planning process.

The standard assumption for not doing the above is that any financing source will be flexible enough to adapt the lender or investor program and criteria to suit the business.

In many, many, many cases, this assumption could not be more wrong.

The second problem business owners come across is assuming the process will be timely.  I’ve personally worked on deals that took over a year to complete and dramatically delayed the business plans that were draw up.  Business Financing applications are not like applying for standardized things like a credit card, car, or even house.  Each application is really unique in some way and therefore takes more time to evaluate.

Obviously requests for small amounts of capital, say under $250,000, can be more timely and predictable most of the time.  But as the amount of business financing required increases, so does the degree of difficulty finding the financing source that wants to do the deal, and then actually securing the funds and getting them disbursed.

This is why I call the process of business financing an unplanned event.  Its just supposed to happen on cue and doesn’t need to be planned for ahead of time.  This could not be further from the truth.

And in all my years of working on financing projects, I’ve come to expect that there will be a strong sense of urgency when someone is looking for financing (due largely to the fact that s been left too late) and that the process is going to be difficult to manage.

While it doesn’t have to be that way, it almost always is.

Perhaps the problem stems from the lack of basic financing education we get in school or because the process of business financing tends to be infrequently required, so there’s no real need to learn how to properly go about it.  When the need exists, just scramble through it somehow and move on (or something like that).

For companies that are on a growth path and plan to be there for a long time, there is definite value in gaining a greater understanding of how to best approach locating and securing the capital they need to effectively manage their growth.

Time has proven over and over again that business financing doesn’t have to be planned, but it sure can help if it is.

Technorati Tags: Business Finance, Business Financing, securing capital

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

When Seeking Capital For Business Financing There Is A Relationship Between Money And Time

One of the first things to realize about money is that there is almost an infinite supply of it on a global basis.

The number of potential sources of financing are too numerous to consider over several lifetimes.

So if you have a business proposal with a solid value proposition, there is likely going to be some one or something out there that would be interested in providing Business Financing to you.

That’s the good news.

The bad news or perhaps more unexpected news most business owners and managers either don’t want to hear, or find out about the hard way, is that there is a direct time relationship between the money you’re looking for and time it takes to locate and secure it.

For traditional forms of business financing for things like equipment and real estate, the time period can be a matter of weeks to a month.

For securing government grants and loans, the time period can take several months.

Equity capital can take months to years.

The more unique your value proposition, the longer its likely going to take to find the right fit.

And remember that all this is predicated on having something of value to leverage in the first place.

The point here is that while there is lots of money out there, it’s going to take time, sometimes a lot of time to secure the capital you seek.

Common thinking is more on the lines of the opposite point of view whereby the average business owner or manager assumes that securing capital will be a fairly straight forward process that can be successfully completed without any advanced planning, regardless of the use of funds.

My own unofficial statistic on the subject of time and money is that over 80% of all business financing activities are unplanned events.  What I mean by this is that the quest for capital typically is not started soon enough due to the misconception in society that capital funding will be easy to come by.

At the same time, I’m not saying it can’t be a fast and easy process, I’ve just never seen it, especially when there is a significant amount of financing involved.

Sure, you can get a piece of equipment financed and funded in 24 hours if all the conditions are in order, but that’s really just a personal financing model based on credit score, reported income, and personal net worth.  For just about anything else, business financing is more complicated and takes time to locate and secure.

When I say an unplanned event, I basically mean that all aspects of a business project tend to be planned out and managed in steps except for the money part,  which is basically assumed to be available when required, ergo an unplanned event.

And while it may seem logical to build out a business model and then look for capital, the opposite tends to be true.  Instead of just working back from the market to take advantage of  a business opportunity, a business also needs to work backwards from sources of capital to make sure that the resulting business model not only lines up with the market but also with the money.

By taking this extra step in the early days of planning, the business approach can be modified to make the overall opportunity more “finance-able” or more appealing to targeted sources of capital.

But this is a time versus money trade off.  That is, should we spend all our time and money developing a “if we build it, the money will come” approach, or should we invest time, energy, and scarce resources trying to plan out the path to capital funding from the beginning only to potentially find out later that it was all unnecessary work when the capital ends up being readily available?

My vote is on the latter as I’ve seen way too many opportunities or financing requirements crash and burn because the deals or situations were not in a “finance-able” state for targeted lenders or investors to do anything with, or the money that was available was not sufficient and caused the business model and time lines to be altered, creating greater risk on the success of the overall project.

That’s the thing about the time and money relationship.  While you may have something of value that can attract capital over time, can you survive until that day comes, or will you run out of time?

Technorati Tags: Business Finance, Business Financing, securing capital

Business Finance Goal Review For 2009 and 2010

If you’ve spent any amount of time on this blog, you’ll here me talk repeatedly about what I call the 80/20 of Business Finance which comes down to three things”

• Securing the capital the business requires when it requires it.
• Managing the cash flow of the business to meet operational needs and minimize costs.
• Continually working towards the exit strategy of the business and in the process making sure everything the business undertakes supports and enhances the long term value of the enterprise.

So in 2009, how did you do?

As a business manager and owner, did you stay at a strategic level and manage the finance elements of the business through these three focus areas.

Has the business improved in each of these areas over the course of the last 12 months?  What about what lies ahead in 2010?

The December year end is a time for celebration in many parts of the world and for many businesses, its also a time of year end planning, next year planning, and overall performance measurement.

Just remember that to have the financial success your seeking, the business finance side of the business needs to be managed and kept in balance with the marketing side.

And to me, there is no better place to start increasing your returns and future probability of success than through getting more focused on the three things mentioned above.

Finance doesn’t have to be hard, but it does have to be directed. Leaving all the Business Financing decisions up to the bean counters is just asking for trouble.

The key is to identify the metrics of the business that everything summarizes into so that you can quickly understand the overall health of the patient without knowing the inner workings of each moving part.

I had a Brazilian boss for a year and a half during my time working for a large multinational company.  Whether it was because he was Brazilian or a type triple AAA personality, I’m not sure, but he thought he knew everything about everything.   As a marketing person by nature, finance was something he needed to learn to do his job.

So every month, we would sit down and I would produce one piece of paper with all the key metrics of the business, all the things we needed to measure to make sure that the three core elements of finance I have mentioned were intact and functioning properly.

We would sit there and debate each item… why this was up and why this was down.  His goal was to show me in less than an hour each month that he knew more about our financial position than I did, and my goal was to survive the interogation.

But the process did serve a purpose.  At least once a month, even at a high level, he took the time to zero in on business finance and see if everything was in balance and if it wasn’t, to identify the actions required to get things to where they needed to be.

My boss wasn’t the finance expert, I was (of course I never told him that).  And he didn’t have to be.  He needed to manage the overall business and stay at a strategic level.  And that’s exactly what he did.

Technorati Tags: Business Finance, Business Financing, exit strategy, managing cashflow, securing capital

Telling A Good Cohesive Story Can Make The Difference Between Securing Capital or Coming Up Short

When going through the process of securing capital, don’t underestimate the power of a good story.

Even though any application for Business Financing is going to focused on the numbers, the actual background story is what ties everything together and can really make or break the deal.

When looking for business financing, the back story has three basic components:  How we got here; exactly where we are right now and why we need more money;  our plan to manage the business on a go forward basis and provide a return on the capital we are seeking.

From a numbers point of view, the story needs to tie past, present, and future together seamlessly.  To often, the write up that accompanies an application is disjointed from past through future, leaving the reader scratching their heads and becoming less enthused with the deal by the minute.

As an example, the future projected financial statements do not reconcile properly with historical results, leaving gaps in the logic that was used to create them.  If there is a logical reason to make radical changes to the future expected results, then significant explanation and support needs to be included.

Moving from the quantitative to the qualitative, one of the key components of any good story is a description of the management team, their individual and collective experience including their track record of previous successes related to helping other organizations meet or exceed their goals and financial expectations.

When it comes to securing capital for acquisitions or start ups, as much as 70% of the overall lender or investor decision making criteria can be based on the strength and abilities of the management team as well as their stated plan for moving the organization forward.

In many cases, deals are pressed for time and the story either gets passed over completely or grossly minimized in order to save time when getting something in the hands of the capital provider to assess.

The feeling can be “just get me in front of the lender or investor, and I’ll tell a brilliant story”.  While a great presentation can have a major impact, there are at least three reasons why something in writing at the start should not be overlooked or simplified.

First, the written story with the initial information package serves as a first impression that actually gives you the opportunity to make a killer presentation.

Second, by providing a well written story that ties everything together,  management is demonstrating their skill and knowledge, further adding to the credibility of the deal.

Third, a presentation that effectively works off of and expands the written story demonstrates that the individuals asking for the money actually were involved in the written plan versus something that was outsourced to a gifted business plan writer who knows how to hit all the hot buttons and strategically embellish certain things to create a more effective marketing piece.

When I worked as a lender, I had a rule that the larger the deal,  the more often I would need to interview the key participants over a period of time.  The key reason why I did this was to make sure the story held together.

In the initial stages of a deal, the higher potential applicants tend to be very well prepared and well polished when delivering their story.  By requiring several impromptu discussions, my goal was to see if the story stayed the same under circumstances where every word was not measured and excessively rehearsed.

Not surprisingly, many cases could not hold water over time.  Their stories developed holes and inconsistencies which ultimately signaled a lack of disclosure and/or a lack of a solid plan.

For those that did hold together, the business financing decision became much easier to make in their favor.

Without a solid story, securing capital can be very challenging indeed.

Technorati Tags: Business Financing, securing capital

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.

Technorati Tags: Business Financing, debt lenders, equity investors, Secure Capital, securing capital