Tag Archive for "loans"
The recent increase in M&A activity would suggest the credit markets are beginning to thaw at the highest levels. Hopefully this means the small business market will see activity in 2010 though exactly when remains the mystery. Being prepared to act is therefore important. It’s a good time to review where you and your business stand on what the lenders call the “5 C’s” which is how they evaluate the creditworthiness of a business.
- Character: What is your company’s credit history and how likely is it the loan will be repaid? If you know you will borrow you then need to know what you will use the funds for and how you will generate the funds to repay the loan at the appointed intervals.
- Capacity: Will the company generate sufficient cashflow to meet current and future repayment requirements? As part of the process of applying for the loan a detailed cashflow analysis should be prepared. Ongoing the cashflow analysis should be updated monthly at a minimum. You don’t need any surprise cash shortages surfacing.
- Collateral: Do you have non-business assets that can secure the loan? For the small business owner this often means putting up the family residence which can be a scary proposition. All the more reason to stay on top of cashflow.
- Capital: Do you and your business have sufficient net worth to justify this loan? It will be important to have current and personal financial statements available. Also asking if the lender has minimums is important before getting too far in to the process.
- Conditions: What outside factors, for instance the economic outlook and competition, could impact repaying the loan? Knowing what is happening in your market(s) is critical.
Lenders are also looking at how quickly you collect your accounts receivable and pay your accounts payable. The aging of accounts receivable and accounts payable needs to be updated weekly and examined periodically throughout the week.
Taking time now to get your business in credit shape will pay-off for when the thaw reaches the small business loan market.
The Wall Street Journal recently ran an article that stated the 90% guarantee program currently in place will run out by the end of November or December. Since loans can take up to 120 days to be approved speed is of the essence.
Here are ways to speed up the process.
- Make sure your financial statements are up-to-date. Make sure the projections show you can pay everyone back.
- Write or update your business plan.
- Write or update your marketing plan.
- Use an SBA preferred lender even if they aren’t your current bank.
- Make sure the preferred lender works with your type of business. You don’t need educate the lender while time runs out. If you are just starting up the SBA will not guarantee a loan to you.
- Consider scenario planning and apply for loans with several banks.
- Bank’s want you to mitigate their risk. Consider making a higher down payment or, and this is not a favorite of mine, a personal guarantee.
- Consider tapping the advice of someone who is used to putting this type of loan application together. Find the local Small Business Development Center or SCORE office. If you are in Boston, MA or Providence, RI you can get help from the Center for Women & Enterprise (and yes men are welcome and even helped!).
Time is awasting if you want this type of loan. Hesitate and you will be back to 75-85% guarantee levels and having to pay fees.
Are you looking for money in this tough lending environment? Have you done your homework? Lenders don’t hold your hand and they won’t tell you what you’re doing wrong. They’ll just say “No”.
Here are a few points to make you better prepared for approaching a lender:
- Have you tried to restructure your cashflow? Perhaps you really don’t need a loan. Rather you need to run your operations more efficiently. If you haven’t considered this go no further.
- Is the loan an urgent or an important need? If it’s urgent and the bank or funding source smells desperation…it’s not a good scenario for reaching a yes answer.
- What you will use the money for? Can you provide a use of funds schedule that is defendable? Think equipment purchases and job creation to be convincing.
- Does your business plan support your need for financing? Funny how we can stray from the original purpose of our business and then find we need more capital. If your financing requirements and your business plan don’t align you should not approach a lender until they do. This may mean you shut down a part of your operations and then find you no longer need a loan.
- What does your organization chart say about your company and your management style? You don’t want the lender to conclude the team you have in place can’t execute the business plan you present. If you are thin at the senior level consider forming an advisory board. An advisory board will show the lender you are committed to covering the gaps even if you can’t hire. Be able to explain the situation so the lender can approve your request.
Please contact me if you need an objective review of your lending request.
