BMO Getting More Serious About Business Financing
A market wire news release came out this week about BMO’s 2010 business financing lending.
Here is an excerpt from the article…
BMO Study Finds 80 per cent of Small Business Owners in Ontario Consider Access to Credit as an Important Determinant Choosing Their Bank
BMO to Add 150 New Small Business Banking Experts Across Canada in 2011.
….
Here’s a link to the full article …http://www.marketwire.com/press-release/BMO-Small-Business-Lending-in-Ontario-Reached-More-Than-11-Billion-in-2010-TSX-BMO-1423285.htm
The first point is more than a bit obvious. I don’t need a survey to tell me that at least 80% of small business owners may want access to credit at some point from their bank.
The second point is more interesting and telling.
During the recession, the major banks and other institutional lenders were laying people off and coming up with new and creative ways to decline requests for business financing.
Now BMO is telling us about all the money they lent out last year, survey results that speak to businesses looking for capital, and an announcement that they are going to hire a bunch of new people to work on business financing requests.
I’d say this is definitely a strong signal that the business lending market is getting back to what we may consider more normal operations in the Canadian market.
That being said, I still believe that the major lenders’ credit policies are going to still be tighter than they were a couple of years ago, but at least they are actually getting back to lending money.
Canadian Economic Growth On Track
Despite the high dollar, earthquakes in Japan, and general instability in the global financial markets, the Canadian economy is chugging right along and even slightly exceeding its growth targets so far in 2011.
This RTT News wire provides more of the statistical facts for those that are interested… http://www.rttnews.com/Content/AllEconomicNews.aspx?Id=1588120&SM=1
The challenge with growth is are you growing at the right speed to keep inflation in check and interest rates from rising.
And while the Bank Of Canada governor Mark Carney has mentioned that there is still considerable lack in the economy, capacity is being used up slightly faster than projected.
So for now, its likely that business financing interest rates aren’t going anywhere in Canada.
But that could change in the second half of 2011, especially if the economy stays on its current growth pace.
This is in keeping with what we have been hearing now for the last several months.
With commercial lenders loosening up the purse strings to some degree these days, now is a good time to be locking in the current rates if you have any fixed interest term lending facilities.
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Mega Loans A Sign That Commercial Lenders Are Loosening Up
The first quarter of 2011 has been highilighted by some larger commercial financing deals in both Canada and the U.S.
And while lending levels have not completely returned to the pre-recession period, things have greatly improved over the most recent months.
To further make the point, here is an article from the CTV news that talks about mega loans being used for financing takeovers.
http://www.ctv.ca/generic/generated/static/business/article1969220.html
This draws us to a couple of interesting observations.
First, the article talks about how commercial lenders have been getting more aggressive in providing short term bridge loans for acquisition and take over targets. This type of business financing is put into place to close the deal and by time until the long term funding can be arranged. But there is lots that can go wrong in the interim which could delay or even prevent the long term take out from happening, so in and of itself, this is a farily risky form of business financing.
That being said, business financing sources are making these types of deals, speaking to their comfort level in where the economy is at and their need to get back in the game to a larger extent to increase their profits.
These type of mega short term loans are also potentially a major boost to the economy in a number of other ways. The nature of a recession is that there is going to be industry consolidation and restructuring. But this can’t happen if there isn’t any money available to finance consolidating type activities.
As commercial financing starts to flow more freely, more of the ineffeciency in the market is going to get cleaned up faster and move towards positive production and job creation.
And even though we are talking about mega loans here, this does likely have a trickle down effect to small and medium sized businesses whom have had a hard time securing reasonably priced capital during the last two years.
If you’d like more information about your business financing options, then click here to go to our main website
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
Refinancing Equipment
“Things To Keep In Mind When Trying To Refinance Equipment”
One of the logical conclusion business owners have drawn in the last couple years during which cash flow has been tight for many is that they should be able to refinance the equity in their equipment to inject capital back into the cash flow.
In many cases, more established businesses with long life use assets have paid off any loans or leases owing and hold clear title to the equipment.
But while this is logical to the business owner, its not so automatic with financing providers.
The key to this type of financing is the same as any type of financing, and that’s cash flow.
If the financing is required to prop up cash flow, then there are going to be less interested parties to provide the required debt financing and those that are interested are going to charge more for the associated risk.
As a result, refinancing equipment is not an easy game at all, especially in Canada with U.S. lenders being more open to the idea.
For the small to medium sized business owner, the challenges start with amount of financing versus security value.
To start with, most debt financing sources that will provide equipment loans and leases to refinance existing equipment will not fund more than 40% to 60% of the forced liquidation value of the assets in question.
When you’re in a depressed market period where the used equipment market is flooded with inventory, the forced liquidation value may only be 50% or less of what the business owner believes is the long run fair market value.
So if I believe my equipment is worth $100,000 and the forced liquidation value is 50% of that, and the lender will only lend 50% of forced liquidation, I’m now looking at potentially securing $25,000 against assets owned free and clear.
But for these smaller amounts of financing, the only lenders that tend to consider these applications are ones that can be convinced that better days are ahead and that the business is either stable or in a growth position versus being in distress.
With larger financing requests of $250,000 or more, the refinancing can still be done through an asset based lender even if the business is in a distressed situation, but the rates and fees are going to be substantially higher due to the higher risk of business failure and loan loss.
So if you’re looking at your equipment as a source of additional capital, consider what you might be able to actually get out of it as well as the cost of financing.
Another challenge is to figure out who is most likely to be able to help you and for the better rates and terms.
For my two cents, I recommend you work with a business financing specialist who can help you quickly determine what’s possible and where to apply so no time or money is wasted going through the process.
Click Here To Speak To Business Financing Specialist Brent Finlay
Asset Based Loan Fit
“When Does It Make Sense To Get An Asset Based Loan?”
First of all, what do we mean by the term asset based loan?
There are certainly may definitions available in the market place to choose from, but for the purposes of this discussion we are going to refer to asset based lending in the context that the assets provided as security are the primary focus of the lending decision.
When we speak of bank or institutional business financing, there is lots of asset based loans being provided as banks want hard security as much or more so than any other type of lender. The difference with a bank or institutional lender is that they will not consider lending against assets or taking assets as security unless there is the presence of strong cash flow and credit standing.
With an asset based lender, credit and cash flow are still important, but the value placed on those criteria in the decision making process is lower.
The one exception to this definition is when banks or institutional lenders have their own asset based lending program which will be an extension of their traditional business lending programs, but with higher asset leverage and more operational controls in place.
So based on this definition, when is an asset based loan a good fit?
Let’s drill down on the two most common scenarios.
Business Distress
The business is having some trouble for whatever reason and can no longer secure or retain financing from a bank or institutional lender. In this situation, the risk of lending loss is much higher and requires a greater focus on cash control by the lender and loan protect through the lender’s ability to liquidate the assets for a predictable value if required to repay the loan.
This type of asset based financing is high cost and short term in nature, typically not more than two years. A business accepting this type of loan is either going to be taking one last shot to right the ship or is buying time to orchestrate an orderly wind down in order to maximize the cash generated from wind down.
Business Growth
There are two tiers of asset based lending with respect to business growth. The first tier which is more traditional asset based lending still is providing higher cost financing as the growth period, especially for early stage companies can be quite risky. This again is short term financing in most cases, allowing the business to grow to a size and level of stability that can qualify for lower cost conventional financing.
The second tier of growth financing is for more established businesses that already have a strong balance sheet and past profit performance record, but require higher levels of asset leverage than what conventional lending programs can provide.
Determining the right fit of asset based lender to your particular situation can take some work and time. The best approach is to work with an experienced business financing specialist who can accurately assess your situation and guide you through the market.
Click Here To Speak With Business Financing Specialist Brent Finlay
Ready To Apply For Busines Financing?
“Are You Sure You’re Ready To Put In An Application For A Business Loan Or Business Financing Facility?”
I good portion of what I do is to arrange business financing facilities for small and medium sized business owners.
And a good amount of the initial time I spend with a client is figuring out if they are ready to apply for financing or as I like to say, are in a “finance-able” position.
Unfortunately, I good bit of the time I have to try and convince them that until certain things are brought into order, the financing they’re looking for is unlikely to be coming their way any time soon and some potential financing opportunities may get destroyed by an incomplete or uninspiring credit package.
The truth of the matter is that business financing is much harder to secure in 2011 than it was only a few short years ago. And business owners have been spoiled into believing that close enough is good enough when it comes to putting forward the information a lender or debt provider is likely going to want to see and review.
And the old adage that you never get a second chance to make a first impression was probably first uttered by a bank manager or debt financing source of some type. A lender is going to say N0 more than Yes and the process of going through an application in many ways is a disqualification process as they try to get to N0 as fast as possible.
The fastest pathway to NO today and perhaps for a long time with a lender is to present an incomplete and somewhat sloppy application package. While most people do not have any desire to become an anal retentive bean counter, the reality is that they are initial being judged on both their physical appearance and information appearance. And by the way, a nice hair cut and a sharp looking business suit will not make up for a less than stellar information package.
When lenders turn business owners down because of incomplete information, poor information system reporting, lack of up to date business knowledge, etc., they typically will even go so far as to put notes on the file so the next time you come in to apply for business financing, even if the people you initially met with aren’t there anymore, the notes will be left behind for those that are.
From the files I work on, there are basically two types of situations that, unless you’re completely desperate for cash, should cause you to hold off applying for a loan or financing facility.
The first is about the wrong point in time. If the last business cycle was less than stellar and you’re in the middle of a pretty good year, until you can get third party financial statements completed, the application is likely going to suffer.
The right point in time is always when things are not only going good, but when you can verify that they are going good through third party validation.
The second situation where you should throw out the anchor and slow down is when the business is running a bit ragged. Sure, you may be making money and not owe much debt, but the accounting systems and other information systems are in shambles or not up to date, providing a low level of confidence that you’re in a position to manage growth or take on debt for whatever reason.
Its easy to not only waste a lot of time trying to plow a road with poor equipment, but its even easier to screw up opportunities where someone would have been prepared to advance a financing facility if you would have had your —- together at the time of application.
The key here is to make sure you are in a “finance-able position” prior to applying and the best way to do that is to work with experienced business financing specialist who knows what the market is likely to accept or not accept.
Click Here To Speak With Business Financing Specialist Brent Finlay
Importance Of Counting The Beans Properly
“Make Sure That Your Accounting System Will Provide A Lender With The Confidence They Need To Lend You Money”
In the process of trying to secure business financing for a small or medium sized business, the business owner or manager is typically focused on presenting their business plan, historical financial statements from the accountant, and some projections for the future profitability of the business.
What is overlooked in many cases is the state of the accounting and/or bookkeeping system that counts the beans.
In this day and age of closer scrutiny by lenders and debt providers, its not uncommon for lender due diligence to reach into the bookkeeping and accounting system and practices to see if the proper rigor and discipline is being applied to the financial side of the business.
And what’s even more common is that most businesses score keeping systems are not up to par and can’t meet the standards of the person doing the reviewing.
When this happens, all the hard work it took to find a lender that was willing to provide business financing in the first place can quickly go up in smoke as the business owner’s credibility goes out the window along with all the ledgers and sub ledgers that don’t balance.
Its not at all uncommon for businesses to take a close enough is good enough attitude to record keeping, then through everything at the accountant at the year end to see if they can make sense of it in order to produce some sort of reliable and valid financial statements. Unfortunately, because year end filings aren’t required for months after the year end, nothing in the behavior tends to get corrected due to the fact that as soon as the books are finally closed for a given year, the business is half way through the next with another set of incomplete records already in the making.
The message here is basically that good accurate bookkeeping and accounting practices provide credibility and support for any lending decision a bank or institutional debt financier is prepared to make to a company.
Counting the beans properly should also lend to better decision making, better cash flow management, and greater lead time to deal with issues that are known sooner.
Good financial management is just as much a decision making factor to a lender as is the business strategy, owner experience, and historical financial performance.
And its likely that higher scrutiny is going to continue, especially after the high levels of loan failures of recent years.
Click Here To Speak With Business Financing Specialist Brent Finlay
Securing Capital For Growth – Moving From Theory To Practice
“Proof Of Concept Leads To Business Financing More Often And Much Faster Than Not”
Because we live in a fast paced, immediate need fulfillment society, there is the unrealistic expectation on the part of entrepreneurs and business owners that people with money are willing to finance our hopes and dreams and let us start living the good life faster than is realistically possible.
Start up capital is hard to raise for one very important reason…the request for business financing is based on theory not practice.
While every would be entrepreneur or serial entrepreneur is convinced that their latest idea or plan is sure to succeed, statistics related to business failures in start ups would prove otherwise.
As I mention to individuals that call me to help finance basically their business plans, debt financiers and equity investors are looking for those individuals with the good ideas, accompanied by the proof that they’ve figured out or learned the first thousand things required to make money in a given business pursuit.
The analogy I will typically provide is that most entrepreneurs or business owners with a great idea and solid market opportunity available have done a great job of learning the first hundred things that are important for them to make money in their chosen en devour. However, at that point in the evolutionary process of getting to market, they start asking for large sums of money to accelerate the process.
In most cases, people with money are not interested in funding those who have not been able to get further down the learning curve, closer to the knowing of the thousand things that are important unless its some kind of mind blowing surefire thing a ma jig.
In the early stages of developed, no matter how well the business plan is written and how thorough it identifies and addresses all significant risks to moving forward, its still all theory.
What I mean by theory is that it hasn’t been done yet.
Moving from theory to practical application where actual results are generated, measured, and shown to be profitable is the ultimate pathway to finding all the business financing you could possibly require.
In order to accomplish this, the entrepreneur or business owner needs to figure out what the smallest possible scale he or she can work at to achieve the desired result and how much money will be required to develop and implement this smaller scale model of the grand design.
This is going to be a much smaller amount of money to locate than the big picture funding most are looking for, and in the event that the mainstream market is still not interested in funding, the requirements may be small enough for bootstrapping and the recruitment of investors from the friends, family, and fools section of the market.
Once proof of concept and practical, measurable results are in hand, its going to be a lot easier to get someone to take you more seriously.
Of course this approach will likely mean slowing down the march to market domination and will put off the quest for larger development dollars until one or more economic cycles of the business model can be completed.
But by taking the long way around, you’re going to go through the learning process in much more depth and get closer to the thousand things you need to know.
Or, you can continue to aggressively look for overly aggressive money in the hope that you will be one of the lucky few with more ambition than practical proof of concept that will get the funding necessary to carry on.
Click Here To Speak With Business Financing Specialist Brent Finlay