The Fed says small businesses are still having trouble accessing credit. Here is how you can help yourself.

According to a recent report from the Federal Reserve, small business owners are still having trouble accessing credit despite a generally optimistic outlook for business in the years ahead.  The report says that 44 percent of the respondents cited difficulty in accessing credit or securing funds for expansion. 

Is this really a surprise?  Not to me.  Business owners see risk in a different way from bankers and may not understand what the bank wants and how best to present their case and negotiate financing.  Owners see opportunity as they look to expand.  Banks see risks that may affect loan repayment.  Banks want to make loans, but, they want “good” loans.  Loans repaid from cash flow not a secondary or tertiary repayment source such as sale of collateral or owner’s personal resources.

Apply for a business loan and you will provide a lot of information.  The bank wants company financial statements (annual and interim), corporate tax returns, personal financial statements, personal tax returns, aging’s of receivables and payables, collateral asset information and more.

The owner assembles the information and sends it to the banker and waits.  What could go wrong?  Lots.  Here is a partial list (not making these up!)

  • The annual financial statements don’t agree to the tax returns.
  • The financial statements do not have assets and liabilities properly classified.
  • The statements do not follow from year one to the next.
  • The interim statements are in a different form than the year-end statements. 
  • The aging of accounts receivable and/or accounts payable has lots of over 60 and 90-day balances and/or doesn’t agree to the financial statements.
  • The owners credit report shows liens or judgments and a low score. 
  • The financial statements show marginal profits or losses and the projections are wildly optimistic. 

Now you are explaining errors and this is not the first impression you want to make. 

Aside from poorly documented financials, there are times when the owner may explain the loan need and the view of the future and this doesn’t match the forecast.  A well thought out plan with good projections to match the ideas being presented will enhance the chances of success in getting financing and making your plans work. 

Lets go back to the beginning thesis: companies need banks to finance cash timing differences and expansion opportunities.  The Bank wants to supply credit to qualified businesses.  The application process and the ongoing financial reporting process are important.  You must be able to clearly articulate the borrowing need, show how much you want to borrow and support it with good financial information.  This documentation is important because senior management approvers, loan reviewers and federal examiners may only see documentation in a loan file. 

Bad information or no information could result on your company being put on the “watch list”  (a bad list!).  Now you are under further scrutiny and having to prove with even more information the viability of your business. 

It doesn’t have to be this hard.  Bankers understand good business practices and the challenges of earning profits and generating cash flow.  But they need concise and accurate financial information that supports your explanations about the business  history and the future prospects.  Remember that banks want to make loans to good companies.  Tell them about your business.  Provide good financial information and keep them informed about good new and bad news. 

Getting good financial information is the result of a process.  You need a good accounting system properly set up and organized to record the activities of the company.  A properly supervised accounting team is important for your company.  Hire the financial person who can help you negotiate with banks and investors, prepare and update business plans and manage the preparation of financial reports.

Have more questions?  Call me to discuss.  I’d be happy to help you grow your business. 


Thinking about selling your business? Get ready now.

I recently attended a breakfast meeting that addressed how to maximize after tax proceeds from the sale of your business.  The discussion topics included capital gains taxes, estate taxes and various trust alternatives.  But, the first discussion was the importance of getting the company ready for sale so you started with the highest possible sale amount.  

While you may not be thinking about sale or exit strategy today, it is a good idea to be ready when a prospective buyer or investor shows up at your door. What I am describing should be standard operating procedure for any well run businesses. 

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Planning to start a new business? Here are some answers to basic financing questions.

Planning to start a new business?  Here are some answers to basic financing questions.

How do I borrow money for a startup?  Is that different from a franchise?

To borrow money for any business, these are basic questions that apply equally to a new startup concept, existing business or franchise opportunity. 


How much do you need?  

What is it for? 

How will you pay it back? 

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Start from scratch or buy a franchise. What start-up business model is right for you?

Start from scratch or buy a franchise. What start-up business model is right for you?

Starting a business can seem overwhelming. An alternative has always been a franchise investment. You pay a fee and in return receive a turnkey operation.  It sounds so simple and risk-free. The truth is that whether you choose to go on your own or buy a franchise, there are risks to be addressed.

The big question: can you make money?

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Now that you are prepared with a business plan/loan request, here are some rules to improve your chances of getting your loan.

1.         Understand what kind of loan you need.

The bank provides commercial loans for short tem and long term needs.  Short-term loans are structured as lines of credit and are usually used to finance accounts receivable and inventory.  Long-term needs are financed with term loans.  This can include financing the purchase of equipment, real estate or the purchase of a company.

2.         Pick a banker not a bank.

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Entrepreneurs and business owners spend a lot of time and effort to find financing for their business.   This is often a frustrating experience and leaves the business owner wondering what the bankers really want. While the process of finding bank financing can be time consuming and frustrating, you can significantly improve your chances of getting money you need if you understand some basic rules. 

The good news-- Bankers really do want to make loans.  That is their basic business.  Most banks evaluate lenders based upon their ability to bring in new loans and new customers.  This doesn’t mean the bank wants loans at any cost.  A problem loan is a blemish on that lender’s record and reflects on his judgment.  For the bank, it can mean a financial loss that will take twenty new loans to recover the losses.  Your job is to convince the bank that your company is a good risk and will be a growing and profitable customer.

How can you improve the chances of getting your loan request approved?  Here are some basics.

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