Many of my business clients have been recently awarded a new contract, landed a new purchase order or based on their unique business model; believe they could obtain more business. In either case these CEO’ are all in the market for additional business funding to grow.
Like any desired business objective, you must have a plan to make anything happen. To grow, a strategic business funding plan is therefore critical. The strategic business funding plan must identify the amount and type of funding your business needs, what lending sources you plan on contacting and what kind of terms and conditions you would like to “close the deal on.”
Most small business CEOs are not professional money finders and thus their success rate is not very good in procuring competitive low interest rate loans. It is not that hard to obtain a business loan when the lenders you contact want to lend you money in the 15%- 35% interest rate range. (Yes, they are out there and thriving.) In fact, many will solicit you first before you contact them. But seriously, how can you grow your net profits when the cost of your expansion business loans is so expensive?
Here are a three tips that will make your “loan hunting” process more effective and allow you to grow your business in a cost effective manner. (Effective is defined as affordable funding, in the 4.00%-8.00% interest rate change)
• Make sure your internal bookkeeping/accounting systems are set up to produce accurate and timely financial statements. Hire a competent CPA and make sure your internal accounting/bookkeeping staff are well trained and highly competent as well. If your books and records are of poor quality you can pretty much kiss your low interest loan goodbye. To the quality lenders, poor financial records means too much risk and most likely in today’s environment that is code for “loan request declined”.
• Clean up your personal credit report, (FICO Score) as best as you can. Make sure there are no incorrect entries on your report. Prepare written explanations in advance for any negative items on your report. Quality lenders take into account your personal credit and income levels when they underwrite your business loan application. They create a loan metric called “global cash flow” which is calculated by adding your business cash flow to your personal cash flow. If you have a spectacular business with awesome cash flow having poor personal credit could be problematic.
• Put together a simple written 3 page growth strategy that answers these questions: (share this written document with your selected lenders.)
1. What services or products do you offer and what industry are you competing in? How is your industry doing in terms of sales; up, down or flat?
2. What growth opportunity has presented itself and why is your company uniquely poised to take advantage of it? Why are you better than your competitors?
3. As was stated earlier, what size of loan do you need to exploit this new growth opportunity? Be very specific on what you are going to use the business loan for. Larger building, new equipment, more inventory, more people, new promotional strategy, etc.
4. What will be the results in terms of additional sales, new customers and more profits over the next 12 months if you obtain the loan you are seeking?
On a separate spread sheet create a forecasted balance sheet, profit and loss and cash flow statements. This is the hard part that trips up most business owners. Have your accountant or financial advisor help you with this. It is hard to do it correctly. Outline your assumptions in great detail and be prepared to defend them with quality data.
Good luck, with “your loan hunting” and don’t give up!!