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.