Posts Tagged ‘small business financing’
The Unpredictability Of Commercial Financing
May 29th, 2010
I got a call from a customer with not untypical cash flow management issues and was looking for more alternatives to try and solve his problem.
What I really liked about our discussion, is that this guy understood his business cold and could tell me instantly anything I asked during my qualifying process on the phone, providing the information off the top of his head.
After this type of discussion, I never have any doubt that the client is going to be successful in their business because they have clearly been able to quickly and effectively demonstrate their intimate knowledge of what’s important as well as the things they are doing to grow the business and protect cash flow.
The challenges in this case was rapid growth and how to properly cash flow more sales, which is not an uncommon problem by any stretch with small business owners.
The business owner had also been surveying and studying his financing options in the market and had an above average grasp of where the capital markets are at and what types of options and financing structure where available to him.
Yet despite his above average knowledge level with respect to business financing and how the market in general would view funding his business, he still hadn’t been able to get proper funding in place, even though he’d been working at it for about 6 months.
This is becoming a more and more common theme in the phone calls I get these days.
The commercial financing market is not only hard to understand at times, but right now its almost impossible to predict. And even when you have a business in a “finance-able” position with a totally on top of it business owner, there still can be a lot of art and science into the process of locating and securing financing that the business needs.
More specifically, deal positioning, deal timing, and financial support documentation are now much more critical to lenders than any time in recent memory.
And while I am confident that the caller is more than capable of figuring everything out on his own, how much more time can he invest in the process and how is that time investment impacting his growth strategy?
If you’re business is making money and the only thing blocking you from making more money is capital, the it makes a great deal of sense to pay for the expertise required to keep the business properly funded versus losing out on the future profits lost from mucking around with something that is not only difficult to understand at times, but almost impossible to predict.
Click Here To Speak With Business Financing Specialist Brent Finlay
customer called me to discuss options, had them figured out, but still didn’t know what to do
Business FinancingSmall Business Startup Financing Is Personal Financing
February 24th, 2010
If you’re trying to start up a business or have been in business for less than one year, the acquisition of business financing is typically just personal financing in disguise.
It doesn’t matter how thick or fancy your business plan is, or how many letters of intent you have signed, or your wealth of industry experience, if you trying to start a small business and require capital to do so, you are basically limited to what you’re personal financing profile can provide.
Take a look at banks for instance.
Unless they can get you approved through a government backed loan program for equipment, leaseholds, or real estate purchases, they are not going to extend you a business loan. And even for the government supported programs, if you have below average credit and no personal net worth, you won’t qualify for that either.
Whether we like it or not, start up financing is equity driven, not debt driven. If you’re looking for debt financing of any kind, it will be based highly on your personal credit, personal net worth, and sources of personal income.
The reasoning for this is quite simple. Depending on whose statistics you read, over 40% of start up’s will fail in 5 years. From a lender’s point of view, if 4 out of 10 loans don’t get paid back, the lender will be out of business themselves.
So to get started, you need your own money or the equity investment of others to fund the business.
The business financing side is a bit bizarre in that if you apply for a business loan and are approved on the strength of your personal credit, earnings, and guarantee, you’re still going to be charged a business rate. If you were able to secure the same amount of borrowing through a personal financing program that relies on the same personal factors and security features, the rate would likely be lower.
In many cases it makes far more sense to secure the personal financing available to you from secured and unsecured loans, and then lend the funds acquired to the business as a shareholder loan. This will immediately save you money in lower interest costs.
But because entrepreneurs have their mind set on getting a business loan, lenders are more than happy to provide a personal loan in disguise at a higher rate.
Take a look at the trucking industry. Many leasing companies require owner operators to own a home and have at least an average level of personal credit. The trucker may think he’s applying for business financing, but the lending or leasing decision is mostly based on personal financial and credit factors.
I’m not saying this is right or wrong, good or bad; it just is.
For anyone starting up a business, the sooner they understand the above, the sooner they will stop beating their head against the wall trying to find something that doesn’t exist.
The key take away is that when you have a new business, you need to focus on leveraging your personal credit attributes to gain the best financing deal possible, regardless of what type of lipstick a lender puts on it.
Click Here To Speak To Me Directly About Business Financing
Business FinancingSmall Business Financing Is Mostly Personal Financing
December 2nd, 2009
What’s The Difference Between Business & Personal Financing
For small businesses, there isn’t much if any difference between the two.
There are a couple of key reasons for this.
From a credit point of view, small businesses, especially new ones, don’t have much in the way of business credit established. So lenders will rely on personal credit scores and histories to make business financing decisions.
Even if a small business has been in existence for several years, there still is no guarantee that any amount of business credit will have been established due to the fact that a business credit history is developed by transacting with companies that not only offer credit terms, but also report outstanding credit to credit reporting agencies. Many small businesses either don’t utilize much supplier credit, or way only work with suppliers that are too small to be actively reporting to credit agencies. The result in both cases is that business credit does not build much over time.
From a guarantee point of view, most small business financing facilities will require a guarantee from either the business itself or the owners of the business. If the business itself does not have sufficient retained earnings to provide meaningful value to a guarantee, then a personal guarantee will be required.
Many business owners get frustrated with the fact that even though they are incorporated, they still have to open themselves up to liability personally by having to provide personal guarantees to secure business loans. Unfortunately, incorporation can be more important for tax reasons than liability protection, especially when it comes to securing business capital.
Over time, as the business earns profits and grows its retained earnings, then personal covenants and guarantees may not be required and can even be removed from existing financing facilities.
The key though is to increase the value of the businesses ability to repay debt obligations. If the owners are always striping out the available cash from the business, then the personal guarantees will likely continue to be required due to the fact that the personal side is where all the equity value is being held.
Business Financing