Business Financing Realities

“Proper Expectation, Process, and Focus Are Keys To the New World Of Business Financing”

I had two very similar calls this week from business owners in search of business financing for a project in their respective companies.

The individuals had applied for financing at a financial institution and had spent months now trying to get an approval so that funding could be put into place.

Both were now at the point where they were starting to run out of time and were now frantically looking around on the internet for either a replacement solution or a bridge financing solution that would buy them enough time to get the desired funding in place.

I also get similar versions of this call all the time and I don’t expect much to change in the near future.

The problem starts with a fundamental lack of understanding of where we are at in the financial and capital markets these days and how debt financing sources and equity investors approach opportunities.

Sources of money are more particular these days as to what they will provide money for and how long it will take to make a decision and get funds in place.

Business owners still believe that if they have a good plan and a good story that they will be able to locate and secure funding without much trouble. Their basic mindset is “how hard can be be…or…how long can it really take?”

While there are times that the process of business financing can go fairly smoothly, My standard advise to anyone that will listen is that the its going to take longer than you think and its going to be more difficult that you imagine. If its easier than what I have described, then that’s a bonus, and you’ll be much further ahead of schedule, but just don’t plan for easy.

In order to get success, the approach you take and the process you follow is going to be very important. If you don’t understand what that means, then you’re going to need to invest in some help from those that do.

As far as focus goes, this was the main point I made to both callers.

Both individuals sounded like they had a workable situation underway. The key at this point was to focus in on what was required to get an approval in place and do whatever was necessary to buy time and comply with the lender requirements.

Starting a new funding request with a new series of lenders where time was already short would likely only serve to divert time and energy from the deal they needed to try and complete.

Yes, it most certainly is frustrating when a lender or investor takes their time getting back to you, or continually asks for more information or third party work to be done to complete their funding assessment. When the people you initially spoke with that were so keen to receive your application for financing and to assist your business now seem to be taking an inordinate amount of time working through their own requirements, it can be excruciating, especially if you’re on the clock.

And sometimes you also have to know when things are not going anywhere and then make a course correction. But typically when things don’t go anywhere in the world of finance is due to some combination of 1) talking to the wrong financing sources in the first place; 2) not properly presenting the information in a format and level of completeness acceptable to the lender or investor; 3) not having proper risk management in place to secure the deal; 4) not having enough time for financing process to be completed; 5) not staying on top of all the individuals that need to contribute to the application.

Unfortunately for my two callers, as soon as they hung up the phone with me, they probably called the next listing they found and put in a call. In most cases they will be greeted by a marketing person who wants to take a look at their file and see what can be done. In both of these cases, based on the information I was provided, this would only serve to take precise time away from trying to make what they already had going work…even more so if they make a few additional calls.

Click Here To Get In Contact With Business Financing Specialist Brent Finlay

Will Record Low Inflation Keep Canadian Interest Rates Down?

The Canadian inflation rate, tracked through the Consumer price index, minus a few volatile commodities, is the lowest its been in history according to the number released for February, 2011.  Here’s the Financial Post story with more background details

http://www.financialpost.com/Canada+core+inflation+slows+record/4463311/story.html

With the Bank of Canada also commenting that there is sufficient “slack” in the economy to ward off the concerns of near term inflation, every one appears confident that the Canadian inflation target can remain within its 2% target.

So how does this impact interest rates now and into the near future at the least?

The major banks are still talking about rate increases during 2011.

Considering what’s going on in the rest of the world, its hard to imagine the cost of money increasing very much if at all in the near term.

So while it may be a good time to expand your business or refinance the balance sheet, the challenge is not likely in the interest rates going up, but the banks parting with their money.  Business financing approvals for the lower cost forms of money are still harder to come by in 2011 than compared to two or three years ago.

The process for securing commercial capital is indeed more complex and not likely to get any easier any time soon.

If you’d like to find out more about how to locate and secure the business capital you’re looking for, visit the businessfinancespecialist.com

How Superbowl Preparation Relates To Business Financing

“Success Does Start With Preparation, Regardless Of What The Objective Your Trying To Achieve”

The Superbowl didn’t go so well yesterday for my Steelers… that is for the part of the game I actually got to see versus chasing my kids around.

Regardless of who won, what was well known before the game began was that both teams were prepared to play, that sufficient preparation had gone into the two weeks leading up to the big game and for both the Packers and Steelers, success was only going to be possible through the necessary preparation, or at least it would considerably strengthen the odds of winning the game.

With business financing, there is a view among many business owners that securing third party capital in the form of debt financing or equity investing does not require a great deal of preparation and that knowing the process and managing the details of what leads you to getting business financing in the first place are not overly important.

The football equivalent to this type of thinking would be for the Steeler and the Packers to take two weeks off prior to the game, arrive a couple hours before the game began, and then get ready to play. This is not to say that this approach could not be successful, but their are long odds against it which is why no one does it.

Yet in the business world, the process of looking and securing capital for a business is very much like this at times. The business owner, once again in many but not all cases, doesn’t really understand the full process, starts preparing too close to the time the money is required, and assumes that he or she will be able to convince a lender or investor to provide capital without much effort or time being extended.

Once again, this approach can prove to be successful, as it has in the past, especially in the economic period prior to the last recession.

Which is what has also led us into the current economic downturn…too many people prepared to borrow or invest too much money into situations that were not prepared to receive and properly manage capital.

Now that things have tightened up in the capital markets, success once again goes to prepared more so than the unprepared.

While developing business plans, financial projections, and project plans for the future as well as developing a solid working understanding of the performance metrics of the past are not going to be viewed to be overly sexy by most business owners, managers, and entrepreneurs, the same can likely be said towards doing extra film study, extended practice time, and team meetings.

One of the things that has kept me a Steeler fan for over 30 years is their steadfast approach to running a business in a consistent fashion. Focusing on a proven model only makes the future results better. Flip flopping from approach to approach surely will not, especially over time.

Most business owners have a goal to be in business for a long period of time, and modeling out success for many will include the periodic or ongoing need for third party financing. To maintain stability with this critical business component requires a great deal of diligence and at times preparation.

Preparation never guarantees the outcome, but almost without fail will increase the probability of success and make the outcome more realistic to achieve.

Click Here To Speak With Business Financing Specialist Brent Finlay

Maintaing Access To Cheaper Money

“Being Able To Access Cheaper Forms Of Money Can Maintain Long Term Profitability”

Financing your business with cheaper money will promote the longer term health of your business.

Easy to say, but it can be hard to do.

Why?

Because cheaper money is lower risk money, meaning that you always hold significant risk yourself and you continually work hard at minimizing the risk for lenders and investors. In order to maintain access to the lower cost forms of debt and equity, the business financing year in and year out approach is to methodically move through the market and closely monitor the economy so that your collective neck is not sticking too far out.

For many small and medium sized businesses, the principals of cheaper money make sense, but the desire to grow and take risk can easily push a business into higher cost capital that may be difficult to get rid of over time. And if the margins are too thin, then the business owner can easily end up owning a job that hands over all the potential profits to lenders and creditors.

Small business financing lenders get rich by they themselves accessing the cheapest forms of money and then marketing it up 5 to 10 times when they lend it out to SME’s. The key to small business lending success is not to kill the patient, but to price the money and set the debt service at levels that allow the borrower to continue to function.

In their haste to get started or grow too fast, small business owners convince themselves that an equity stake and a proper balance sheet are going to take too long to get into place, turning to more expensive sources of business financing to buy assets or fund working capital, all the while protesting that the cheaper sources of business credit have conspired against them.

The reality is that cheaper money has an equation and discipline that goes with it. And sometimes the process for getting and keeping access to lower risk funding requires a slow and steady pace.

And while there is a certain segment of business owners that are prepared to go for it and earn their way out of more expensive debt, the majority are not prepared to go through boom and bust cycles, opting for steady, profitable growth.

In order to achieve this, business owners and managers need to first learn the requirements of cheaper money and then make sure that they are always reconciling their actions and spending against these requirements, otherwise the business results that get generated can easily fall outside of the requirements of many of the main line banks and institutional lenders that provide the lowest cost levels of business financing.

Bean counting and financial discipline are not always the most popular focus areas for an entrepreneur or business owner. But a lack of focus in these areas creates business imbalance, which can easily lead to more expensive money and effectively serfdom with the business owner turning over the potential future profits to money lenders and settling for a modest wage.

Perhaps some would view this as still better than working for someone else. But it pales in comparison to what may be possible if you keep your financial and credit profile in order.

Click Here To Speak To Business Financing Specialist Brent Finlay

Business Financing For 2011 Starts With A Bang

‘Business Financing Activity High At Start Of 2011″

While the new year always starts with a certain amount of renewed hope and optimism, the business financing activity at the start of 2011 has been very high to say the least.  If the first ten days of 2011 is any indication of where the year is going, we should be in for a pretty good year.

That being said, I should clarify what I mean by the early on business financing activity I’m speaking to.   This is coming from business owners and entrepreneurs actively seeking business business financing facilities.  This could be for new projects or carry over efforts from last year.  In order for this initial flurry of activity to translate into economic activity, there is going to need to be willing participants on both sides..ie borrowers and lenders.

The potential borrowers are certainly doing their part.  It remains to see how lenders will respond to requests in the new calendar year.

In 2010, lenders and investors could be characterized as  cautious and conservative throughout the year, trying not to make any mistakes in an economic turnaround that was hard to predict by industry sector and region.  Last year also saw a continued retraction of the retail space as more lenders either left certain markets all together or went out of business due to failed porfolios.

In 2011, it will be interesting to see what the business financing mood will be like from the sources of financing as well as who will move forward to take on market share that has basically be vacated by competitors.

And one thing to know about the financing market, if this initial flurry of activity translates into funded projects, the action is likely going to continue as word gets around that money is starting to flow more freely.

The corollary to this statement is that nothing much has changed and all this new activity could fizzle out in the coming months, dampening the plans and aspirations for many for the coming year.

The next two months will be a key barometer for how the rest of the year will play out as without an increase to the available money supply for business activity, the economy in general can only progress so fast.

Hopefully the trickle of 201o can turn into a more steady and predictable flow in 2011.

Click Here To Speak Directly To Business Financing Specialist Brent Finlay

Cost Of Locating Business Capital

“What Is The Cost Of Locating And Securing Business Capital?”

Depending on who you’re talking to, there will be those that claim there is no cost to them to acquire business capital and to others the costs is considerable.

I say that there is always a cost to find, arrange, and secure business financing.

Always.

On the no cost side of the argument, people with “A” credit who have always been able to get the financing they need through an institutional lender would claim that they never had to pay anything to locate or arrange the financing nor should they. For these individuals, I say good for you. But there is a cost of time, and business financing these days is tougher to get in place even for those of you with even the best credit and strongest lending profile. And if doing it all yourself gets the best result, that’s great… provided it didn’t take two years to accomplish during which time there could have been a substantial opportunity cost associated with not getting things in place sooner.

To me, biased as I am as a business financing consultant, there is a cost for locating and securing business capital no matter who you are. Even if you go to your bank tomorrow and get financing right away, there is no guarantee that its the best deal available on the market or even the best deal you could have secured with the time you had to work with.

And regardless of whether or not you pay a third party to assist you with the process, looking for business financing is still going to occupy your time and there is a cost to your time.

A better worded question would be how do you minimize the cost of locating business capital and get the largest possible benefit or group of benefits? Avoiding costs trying to understand and do everything yourself, especially in the world of business finance these days, just creates more cost in the long run.

And what’s hard for the average business owner to understand is that the landscape is continually changing so that whatever you thought you understood about finding and securing money for your business a few years ago may no longer be relevant.

It all comes back to how is your time best spent and, all things being equal, will you be able to figure out the best course of action that is actually cheaper for you in the long run compared to what others that work in the market every day may suggest as alternative approaches.

Regardless of what you’re personal belief system is on this subject, remember that there is a cost to this process and many times less investment in the process generates less results.

Click Here to Speak Directly With Business Financing Specialist Brent Finlay

Pros And Cons Of Up Front Engagement Fees

“Should You Consider Engaging With A Business Financing Intermediary That Charges Up Front Fees?”

Its not uncommon for business financing intermediaries to charge up front fees or engagement fees to take on a file where financing is required.

From a business owner or business manager point of view, is this a good business practice or one to stay away from?

Like anything else, payment of money should be related to value received.

On the one hand, business owners will argue that they should never have to pay engagement fees or up front fees for financing as there is no way to know for sure if 1) the business financing intermediary is not a scammer making money collecting fees; or 2) the intermediary or business financing consultant, or broker has a pre-established lending source they have pre qualified your application with.

From the consultant or broker or intermediary’s point of view, the flip side of the argument is, how can I engage in locating financing for a business if they are 1) not monetarily committed and invested in the process (i.e. how badly is this deal being shopped around) and 2) not prepared to either provide a proper financing package, don’t know what a proper financing package is, don’t know why its important to securing business financing, and/or don’t want to pay someone else to spend the necessary time to put one together.

These up front fees or engagement fees are a risk and a cost that may not lead you to the financing you desire, despite the best efforts of fully qualified and reputable intermediaries.

But, not considering these engagements may also restrict your access to business financing sources that may very well be able to invest in your business.

Once again, we go back to value received.

Personally, I only charge up front fees if there is a substantial amount of work for me to complete in order to be able to properly present a case for financing to a qualified lender. If the client is prepared to provide me with everything I need, I’ll work without an up front fee provided I feel comfortable with the applicants commitment to the process I’ve outlined to them.

At the same time, I’m not going to spend 20 plus hours (in some cases 100 plus hours) getting a proper package together without some form of compensation. And in terms of value received, whatever I put together is provided to the client. The package is based on their confidential information, but the presentation and organization is my intellectual property. If you want it, you have to pay for it.

There are many reputable intermediaries that won’t enter into any engagement without an engagement fee as they only want to deal with the most serious clients who understand the risks of broadly shopping a deal.

There are also many arguments for and against these fees. In every case, you have to take a buyer beware mentality, perform all the due diligence you feel necessary to validate the intermediary and their stated approach, and be prepared to lose the money (don’t use your last dollars to enter into one of these engagements) as there is never a guarantee that a financing arrangement will get funded, no matter what you’re being told at the outset.

Click Here To Speak With Business Financing Specialist Brent Finlay

Business Financing Scams

“Here Are Some Tips For Avoiding Business Financing Scams”

Some would argue that there are more business financing scams out there these days than legitimate lenders or financing intermediaries. Especially with the rise of the internet, its pretty easy for a clever scam artist to put up a virtually untraceable presence that makes strong promises but doesn’t deliver against them.

The reason why there are so many business financing scams is because there are always lots of people trying to secure money for a new or existing business and when they can’t get anywhere with the more well known conventional sources, they start looking for other sources.

And what really makes the scams work is issuance of some sort of commitment for the money being requested. Of course in return for being able to move forward, the scammer is going to want an up front fee of some sort. This is where things become tricky for the business owner as up front work fees and commitment fees are also requested by legitimate lenders making it hard to tell who are the good guys and who are the bad guys.

If you’ve come across a source of financing or an intermediary who claims they can lead you to a source of financing, here are some things to consider before stroking a check for any type of fee.

First, Google anything and everything you can find about these guys and see what comes up. If there are negatives, ask them to explain what happened that caused the negative press to occur. If you can trace any negative press back to the source, give them a call as well to get both sides of the story. If nothing comes up when you search for information, that can be just as bad as negative information coming up.

Legitimate sources of financing and financial intermediaries should have a very public and verifiable presence on and off the web. If they don’t, then you’re really in a buyer beware type of situation.

Second, what type of third party or social proof can you get from others that have had some type of similar experience with the lender. It may be difficult to get customer references from the potential lender as client confidentiality needs to be maintained (which is also something a scammer can hide behind when not providing you with this type of info).

Third, go to the better business bureau, FTC, or any other regulated body to see if there is any evidence of the financier’s existence or proof of wrong doing.

Fourth, go through the process and documents that they provide to you very closely to see what holes may exist. If there are items that are unclear or inconsistent with the intent of the agreement, as them to change their documentation and see how they react. The goal is to get them off the basic script and see how they deal with your specific questions. Legitimate businesses go through this all the time, are used to the questions getting asked, and usually have fairly straightforward answers as to what they can or can’t do to change what has been provided to you.

Fifth, disengage your emotional involvement in the deal if you can and stick with logic and your gut instinct. If it sounds too good to be true, then it probably is. Remember that 90% of the time or higher, business financing is never easy or quick to get in place. If someone is saying that it is, they are likely trying to get a hold of your money.

Scammers will prey on the fact that you’re short on time, that you’ve been turned down by others, that you’re looking for someone to take a chance on you.

And even if you do all the above and more and feel confident that you’re working with a legitimate source of financing, there is still no guarantee that whatever money you pay out will result in the business financing you seek. All money paid out up front is a risk. If you can’t afford to lose the money being advanced, don’t pursue the proposal.

Click Here To Speak With Business Financing Specialist Brent Finlay

Local Business Financing Dynamics

“Be Aware Of How The Business Financing Market Services Your Geographic Location(s)”

There can be some considerable differences how lenders operate in one local market compared to another. Local markets can be driven by one specific industry or be more diverse in nature. They can neighbor larger centers that are again narrowly focused on a core group of industries or more broadly representative of the market at large.

All these types of factors will have an influence on both debt lenders and equity investors.

Competition in the business financing realm is typically driven by lots of good business that can be done in a small area of concentration. The more competition, the more opportunity to not only secure financing, but to negotiate better rates and terms. Where competition is limited or sparse, it can be very difficult to not only locate any type of business financing at times, but the cost is likely going to be higher and needs to be factored into the equation.

And just because you see a nationally or provincially or state operated lending organization with branches and reps all over the place, don’t think for a minute that they are going to be applying some sort of generic criteria set or general appetite in all the different local markets they serve. Larger lenders that cover broader geography will typically divide their business according to local business market dynamics and have different rules for lending, different portfolio requirements in different areas.

Same bank, but very different rules.

As a business owner where location will be important to a business financing request, it is important that you become aware of what the business financing dynamics are in your market area. The same can be said for a business starting up or one looking to expand into another locale. Knowing the financing, lending, and investing dynamics for the industry and region ahead of time can save you a lot of pain and anguish in the long run.

And remember that whatever you believe you understand of these local dynamics today, the sands of business finance are always shifting so its going to be important to pay attention to any changes that occur in the local money supply so you’re not caught scrambling to either replace the credit facilities you already have or acquire additional capital for incremental business growth.

Sometimes there are under serviced areas of a region or country for more reasons than just supply and demand. If there isn’t a scalable source of capital around, it can hamper the development of any otherwise viable business opportunity.

Click Here To Speak Directly With Business Financing Specialist Brent Finlay

The Hypocrasy Of Lenders And Borrowers

“Who Exactly Will Honor Their Commitments In The Debt Financing Process?”

When it comes to business financing, the whole process is an interesting study on promise, commitment, and follow through on both the side of the borrower and the lender.

When lenders are prepared to issue a commitment, they provide a piece of boiler plat, pounded out by their lawyers, that a borrower can’t possibly comply with in an absolute sense with more out clauses built in than most hollywood prenups. The lender words everything in their favor and basically provides you with a take it or leave it proposal on all the crafted wording. Even if they are open to make changes, do you have the 30 to 60 days to wait to deal with the back and forth process between their legal counsel, head office and your lawyer?

Probably not. So are lenders hypocrites, preaching loan defaults on one hand and then causing them to happen on the other? Sure they are.

But what about the other side of the equation?

Many business owners will say just about anything to get the capital they’re looking for, especially if their in a real pinch. The prospects of things not working out are not an option and if things do go sideways sometime in the future, the business owner will deal with the problem when required.

Yet, when things do go south, the first thing the borrower does is to try and think up every conceivable strategy to get out from paying back the debt or having to go bankrupt or needing to liquidate other assets to repay the lender that was promised to be repaid… in writing.

Basically, both sides both talk out of both sides of their mouth.

Which is one of the main reasons the current financial markets are in such a mess.

The lesson here if any is that the process of borrowing and lending is very much a game where the rules can be changed by both sides all the time. Its also not for the faint of heart. So if you want to be a borrower or a lender, make sure you’re up for the risk that goes with it.

Sure, as individuals we are conditioned to take on debt to drive the economy…homes, cars, credit cards. But business credit takes risk to a different level, requiring much more savy and fortitude to properly play the game.

The old expression, “neither a borrower or lender be” has been around for a long time for good reason.

But the reality of business is that leverage is required to make the economy go round. So if you’re in business, you’re in this game.

The challenge right now is that most business owners don’t realize that this is a game due to the fact that we have had an unprecedented good run over the last few decades and they haven’t previously had to deal with things not going so well for an extended period of time.

So regardless of your personal moral fiber and commitment to do the right thing, understand that from the impact of the current recession the financial world has now changed and the probability of you as a business owner or lender being on the wrong side of someone else’s agenda are much higher.

Business financing is definitely both art and science. Its also a mix of good intentions and bad, unfortunate circumstances and fateful occurrence.

In the words of Andrew Grove, “only the paranoid survive”. its not about whether or not you’re a hypocrite or not any more regardless if you’re a borrower or lender. Its about how well you play the game.

As far as morals and ethics go, you should always be prepared to play fair… as long as everyone else does.

Click Here To Speak To Business Financing Specialist Brent Finlay