Need money to start or expand your business?
The traditional approach is to go to your bank and ask for a business loan. Be prepared to bear your soul to your ‘friendly’ banker-he or she will ask many questions and will require all your financial records and a current business plan.
Regardless of your status as a ‘start-up’ or as an ‘established’ business you should have a carefully constructed plan of activities that is factual, well documented, and realistic for your market, area, and capability (management).
Even in these troubled times, a ‘real’ business can obtain funding, one way or the other a traditional loan, factoring, investors, or venture capital. Don’t be afraid to ‘shop around’ as individual lenders have different terms, conditions, and amounts they’ll loan-always ask for more than you need!
If you are lucky, you’ll get a loan without odorous attachments such as liens and personal guarantees: based on the past, present, and future business potential.
More commonly you’ll get your loan but with restrictive covenants, liens, attachments, and periodic reviews by the bank or their agents. Avoid putting your house up for collateral, as the bank will take it if there is a default it’s bad enough to lose your business without also losing your home!
For those who have an immediate, if not urgent, a requirement for money I offer my condolences as the more you need the money, the less likely you are to get it!
This is unfortunate and depressing but the truth. A desperate need for money raises serious questions about your business. Your chance of finding proper and favorable funding is drastically reduced-bankers love to give you money when you don’t need it!
Faced with a desperate business, a lending officer will have critical questions that must be answered before any loan can be issued. Questions like:
- Why is funding needed so quickly?
- Has the market, for the business, stagnated?
- Has a competitor entered the market and reduced the potential income stream for the business?
- Has the company’s infrastructure deteriorated to the point where the corporation can no longer effectively compete?
- What happened to management, budgets, forecasting, and foresight–why weren’t the present circumstances anticipated and planned for?
- The desperate need for capital points to, at a minimum, bad management and, more than likely, a floundering business.
Bankers and investors never put money into a sinking ship unless they have substantial collateral that can easily be captured and liquidated-capital assets vs. non-capital. Even in that unlikely situation the ‘hassle factor’ comes into effect, and most lenders will decline to fund.
I know that the last paragraph will upset some people especially those who are heavily invested in their business regarding capital, time, and emotions. Those people will find it difficult to believe that others (banks et al.) can’t see the potential and future prospect of their business.
The best thing in any person’s life is honest feedback, the more, the better. The ability to pragmatically deal with the real world is an absolute requirement for any individual in business.
When bankers or investors tell you that your business is failing don’t get insulted, upset, or depressed. They are giving you honest (brutal) feedback. If you’re lucky, they may indicate that the problem(s) can be solved and possibly proffer some solution(s)-make sure you carefully analyze their advice and act on it if at all possible.
By saying ‘No,’ they are doing you a favor!
Seeking funding to prolong the existence of a floundering business is foolish. While capital will buy you time the eventual fate (failure and possible bankruptcy) will be the same except all the new capital will be added on to the old debt.
Don’t dig yourself a deeper hole, get out of the one you’re in!
While the strain of stopping a business is considered the sooner you do it, the quicker your agony will end, and the process of healing can start.
Many successful people have failed in business and have learned valuable lessons the school of hard knocks. These painful lessons enabled them to reestablish themselves in a more successful venture or career!