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Every business needs money at one time or another. The process
of obtaining financing can be daunting and the chances of success
limited if it is approached in a disorganized or haphazard way.
Lenders are conservative critters; however it is important to
understand that it is their job to lend money, and they are happy
to do so if their risk is reasonable. The chances of obtaining a
business loan are greatly enhanced if you adhere to the following
KNOW WHAT YOU NEED
Understand how you intend to use
business financing, how much funding you need and how you intend to
repay the loan. Be able to communicate this clearly and confidently
with prospective lenders.
UNDERSTAND YOUR CURRENT SITUATION
If you are an
existing business, are you profitable, and does your balance sheet
have positive equity? What does your credit look like? Have a clear
understanding of any existing liens and lien priority. Know your
credit score and answers to derogatory credit issues (liens,
judgments, slow pays, collection actions) before presenting your
application. If there have been credit, profitability or equity
issues in the past, present a credible argument as to why these
issues have been resolved or how this loan will change this
KNOW YOUR OPTIONS
All lending is critiqued from a risk
standpoint. Certain levels of risk will qualify for certain types
of financing. The level of risk is reflected in the cost of the
financing. The more secure a lender's money is, the less it costs
you. Get creative. Financing takes many forms, and is available
from a wide range of sources.
Standard (conventional) bank financing usually offers the best
interest rates, however it is the most difficult to qualify for.
These loans appear as a long-term liability on the business balance
sheet. Conventional loans are available through banks and other
lending institutions and can be guaranteed in whole or part by the
Revolving Lines of Credit are another form of business financing.
This type of loan is secured by accounts receivable or inventory
and is available from a bank or an Asset Based Lender. Credit cards
are a form of revolving line of credit. An Asset-Based Line of
Credit (ABL) is considered alternative financing and is available
to borrowers who are too highly leveraged for a bank.
Real Property, Equipment Leases and Notes are another form of
business financing. In these contracts the collateral for the loan
is the property or equipment itself. When there is no outstanding
balance owed on the asset, the property or equipment could be used
in a Sale-Leaseback transaction. Here, the asset is sold to the
lender for cash, and the borrower leases the property from the
lender until the loan is paid.
Landlords can be a source of financing. It is not uncommon for a
landlord to contribute dollars or rent concessions to the
development of a tenants space. For this loan, the landlord may
require a Percentage of Gross Sales Clause in the lease as
repayment. Extended vendor terms for purchase of product may
provide short-term operating capital loans.
In the event that additional credit strength is required, loan
guarantors or borrowing someones credit may help the borrower
qualify for less expensive financing. Be flexible. Your final
package may be comprised of several lending solutions
PRESENT A CLEAR AND UNDERSTANDABLE PROPOSAL
need to know who you are personally, professionally and
financially. The lender needs to evaluate Income Tax returns
(Corporate and Personal), financial statements (income statement
and balance sheet) and a cash flow projection. The balance sheet
has to look a specific way. The Current Ratio should be at least
1:1, and the Debt to Equity Ratio should be at least 4:1.
Be specific as to how the money is going to be used and how it will
be paid back. Lenders want to know what is securing their debt.
Lenders evaluate the quality of the collateral, and want to insure
that it is adequate to secure the debt in case of default. A
secondary source of repayment is required prior to granting
standard financing. The personal guarantee of the borrower is often
required. In some situations, a lender may seek secondary
collateral. Secondary collateral is simply some other asset in
which you have equity or ownership, i.e. equipment, property,
Business funding is not difficult if the borrower is creative and
realistic. Know how much money you need and how you are going to
use it. Be prepared to defend your needs and anticipate the lenders
questions. In the event that a lender cannot grant your request,
perhaps it is the way a loan is packaged. Find a lender who is
willing to make recommendations that will help you find financing.
A good lender will tell you quickly if they can help you or not. If
an intelligent and organized package is presented, a timely
response is warranted.
About the AuthorWritten by Monte Zwang of Steele Development Corporation, a
consulting firm specializing in business development and financial
strategies. You can reach Steele Development by calling
206.878.9666 or online at www.Steeledevelopment.com .
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Article Published/Sorted/Amended on Scopulus 2006-06-29 23:53:41 in Business Articles