subject: Obtaining Business Financing During an Economic Crisis by:Frank Joseph [print this page] Financing is one of the most difficult tasks for any business, especially during a financial crisis.
Obviously cash flow is the life's blood of any business, at any time, good or bad. The important thing to remember is that because of this crisis all businesses are in the same position you are, as far as cash flow is concerned which directly affects the ability for any company to obtain financing.
So how do we proceed?
Mind Set
The first thing is for you to get into a different "Mind Set" by this I mean that you have to understand that you are not the only individual in need of funding. You have to realize that lending institutions are being inundated with cash starved businesses that ALL need funding now, or they will be out of business. When you understand and accept the fact that you are just a number to the underwriters, you will begin to get yourself into the right mind set and will be better poised to present your case.
Preparation of the "Financial Crisis Funding Request"
Basic and expected financial documents and reports that typically acompany a business loan application
Basic Information
Financial Statement
Cash Flow
Receivables
Payables
Projected Receivables
Funding Needed
Use of those funds
In addition to the basic and expected financial documents and reports that acompany a business loan application, there will be some additional information you are going to have to provide, especialy now that we are in a financial Crisis. While in many cases an established business in sound economic times the basic information was sufficient, to insure your best possible outcome, the additional Information Necessary should be in the form of a Business Plan.
Preformatted "Business Plan Templates" are available and most will give you step by step instructions as to how to create your own "UNIQUE" Business Plan. Notice we said "Unique" this is of the utmost importance, you have got to get across in clear and concise language, backed up with real documented information as to why your business should be financed over another.
Why is this so important? The answer is fairly basic.
Since most of the finance institutions have gotten themselves and us into this mess, they have increased the credit worthiness score of a possible loan candidate to a point which has made it nearly impossible for most businesses to meet, in this economic condition. As this Financial Crisis gets worse, more and more folks are going to be late on payments which will cause the creditors they owe the money to to become behind on their payments, creating a visious cycle that will get worse before it gets better. This reality results in lower credit scores all around. This is nothing to be ashamed of, it is becoming and will be a fact of life in the not so distant future.
So what does that leave for underwriters to base their decision to fund on, well there is the following;
Collateral - If you had the money to place as collateral, you would not need a loan. The lending institutions are afraid to base their decision on real estate anymore, because they themselves screwed up the real estate market by over valuation of real estate. The same goes for stocks and bonds, ask anyone who had Lehman or Bear Sterns stock if there is any stock a lender is willing to use as collateral. No way.
Cosigner - This may be useful depending on who the cosigner is and just how solvent he or she is, unfortunately during a financial crisis most folks with money and assets are not going to be too quick to offer them up for someone else. However, if you do know of someone that might be willing to help you in this capacity, then I would suggest you complete your finance package your are preparing present the "possible cosigner' with your comprehensive "Financial Crisis Funding Request"
Future revenues - One of the most important pieces of information an underwriter looks for is future revenues and more importantly how sound those future revenues are. For instance, years ago, before this financial crisis a few signed contracts showing future sales or projects would have probably sufficed if your company's history provided the backup to confirm your projections. Not any more, with companies, consumers and government spending cuts which are currently occurring every day, underwriters will be reviewing just how sound any future sale you may have are, by calling your clients and confirming and how long you had a contract with them. New contracts depicting future sales may not be looked upon with much credibility. Most underwriters will assume that you had someone sign a contract explicitly to help you obtain the funding. This is why how you structure your contract with your clients for future sales is so important. There must be strict guidelines incorporated that the underwriters can point to backup their decision to fund you. That usually means, penalty clauses inserted that the client must agree to. (I know this is not desirable, but there are ways to make this a little more appealing to your client)
Company Stability - This is extremely important! How long your company has been in business or even how long you have been in the business, your historical work history, together with REAL sincere references. Friends and relatives are good, but will not stand up to lender scrutiny. Real companies that are also experiencing difficulties in this crisis but will attest to the quality of products or services your company provides, your support, your character and enthusiastic willingness to pay for future services or products, mainly because YOU STAND BEHIND YOUR COMPANY. You are the reason for this company to do business with and NOT your competitors.
These are just some of the main UNIQUE assets that your company has to offer that you must convey to a lender.
About the author
Frank Joseph is principal of Frank Joseph Associates which focuses on the economic crisis. For more information on surviving the Financial Crisis please go to http://www.business.financebusinessadvice.com
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