The Right And The Wrong Way To Look For Money

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.