Tag Archives: business financing

Lenders have to be assured that prospective borrowers have the ability to perform well enough to generate profits to repay their financing. They will ensure that the borrower has a vested interest in the operation with their own money, and that there is always a secondary source of repayment from which they can ultimately get out of a deal.

But no matter how well these factors add up, if the lender cannot get comfortable assessing the borrower’s intention to repay the loan, their commitment to honoring their promises, or their basic integrity, that lender will pass on the deal.

Character sometimes has to be adjudged with factors beyond a credit report, lack of a criminal record, and a good loan application. The lender has to spend the time listening, watching, and gathering impressions about how this applicant will operate under pressure. How strong will the borrower’s intentions remain if things don’t go well for the business? Will they work hard to settle their obligations, or throw in the towel and walk away?

Character is the most important factor in a credit decision and can never definitively defined or described until after the credit relationship is over.

Judgment day may be anti-climactic, since a large number of decisions are going to be made in the process; many by the business, many by the lender, and many through compromise. Diligence and purpose must be the focus of your efforts for every decision leading ultimately for the money to run your business.

An important attribute to hold onto through these processes is the perspective of your purpose, and the limitations of your business. It is all about money, but money is still only money.

The process of finding business capital is a sales challenge. You establish needs, find prospects, qualify, and try to close. It is one of dozens of challenges any small business faces every day, but it is not the only one. And solving the money problem does not solely insure success.

Money is the currency in which you operate, but there is a greater challenge in establishing a way to making it flow regularly through your business. Money doesn’t end the list of challenges.

You need to establish some limits as to what your business agree to do, agree not to do, and what it will pay for the financing it is seeking. If your lender asks too much, more than your self-established limit, walk away from the deal.

Remind yourself why you established that limit, and keep looking.

Many lenders have had the unfortunate experience of negotiating loans with a borrower who was using false, exaggerated, or misleading information to obtain credit. Whether or not the ploy succeeded, the effects are often felt by legitimate borrowers, whose applications are scrutinized with even more suspicion due to the experience. While under normal circumstances there is a natural inclination toward trusting people, be prepared to confirm everything.

Unless actual loan losses have been incurred, many lenders may be hesitant to prosecute loan applicants found to have used false information to obtain their loan. But when they do, they may get assistance from the federal government, who insures depositors and regulates banks.

The FDIC (Federal Deposit Insurance Corporation) is not hesitant about using their resources that are available to investigate any attempt to defraud the government (via the bank) with false or misleading information.

These cases are prosecuted by a U.S. Attorney’s Office, who has unlimited resources to pursue such matters. Most federal prosecutors have nearly perfect conviction rates.

For those individuals who are flippant about the integrity of their business dealings, or who willingly try to obtain loans with inflated or misleading (a/k/a fraudulent) information, these actions can carry heavy penalties. It is a federal crime to submit false information in order to induce a federally regulated lender to provide business financing. If caught in such an attempt, one can be sure of criminal prosecution, and if convicted, may be punished with as many as twenty years of imprisonment and a fine of as much as $1,000,000.

Many lenders now require borrowers to certify in writing the accuracy and completeness of the application information they submit. These covenants acknowledge that the information is provided by the borrower in order to obtain loan approval.

Many lenders also have also begun verifying each borrower’s personal and business income tax returns with the Internal Revenue Service. There have been many instances of fictitious tax returns submitted to the lender by fraudulent loan applicants, resulting in significant loan losses. Lenders now confirm that the income tax returns submitted with loan applications are the same as those income tax returns submitted to the IRS to report income.

Think twice – you really don’t want the financing that bad, do you?

Starting a new business is one of the riskiest, yet exciting decisions you will make in your life. While over sixty percent of the new jobs in the United States are created by small businesses annually, a significant number of them are not sustained due to failure.

There are relatively low barriers to entry for starting up many businesses: adopt a name, maybe incorporate, get a business license and away you go. Dreams and schemes are cheap, but before you get too far down the road, you need to set your sights on reality.

While it can be simple to “start” a business, succeeding in business is another story. There are significant personal factors you should consider ahead of the decision to launch into business.

I am reminded of the dozens of business cards handed to me over the years that were in perfect form, good paper, nice design, and contained the designations “Founder, Chairman of the Board, President Chief Executive Officer.” These cards were given to me by freshly-minted entrepreneurs that didn’t have a business checking account yet.

Starting a business is serious work. If you have had trouble working for someone else, wait till you see how tough it is to motivate yourself some days.

There are many tough questions on which you should ponder: Why do I want really want to start a business? The path to small business success is littered with challenges every day. Are you just anxious to upgrade your job title, or do you really have the “fire in the belly” to make it work? Are you willing to endure past the mistakes, bad assumptions, unsympathetic customers, and unethical competitors?

While I would never discourage anyone from exploring the idea of starting their own business, I will try to ensure that the prospective business owners carefully weigh the gravity of how life changes when you adopt the title of “entrepreneur.”

There are more questions that need to be considered: Do I really have the skills and aptitude to earn a living in my own enterprise? How do I get started and what are the highest priorities to generate revenue? What will this enterprise really cost to grow to a sustainable level? Do I have sufficient resources to get to that point, and if not, can I get them anywhere else? These questions should be answered ahead of your decision to quit your old job.

When you’re the new business owner, the burden of making things happen falls on your shoulders. You take on multiple responsibilities usually without true expertise in many of them. And as challenging, you have to supervise others to perform work for you that you are not qualified to do, much less supervise.

Starting and owning a business is one of the most exhilarating and rewarding experiences you may ever have, but also one of the most tiring and challenging. The best advice is to weigh the costs, both on your fortune as well as your person, and make sure you know what you are signing up for before you pick up the pen.

Borrowers must try to imagine the worst case scenario in their business ahead and reflect on how the lender’s terms will impact the business. Sometimes there can be ways to give the lender adequate protection without the full- scale surrender that is often described in the loan agreement.

Business owners must consider these terms and seek to forge an agreement that provides sound options to ensure the business can avoid being disenfranchised by an insecure lender to the detriment of its other creditors, equity, and survival.

The borrower cannot afford to unwittingly put the entire company at the total mercy of a lender. The lender is usually not the only creditor of business, and often not even providing a majority of the credit. The lender’s credit is important, but is usually secured, which provides at least two ways to get out of the deal.

Protect the business. Demand, argue, and hold out for changes in the terms that can compromise the continuation of the business at the whim of the lender. The lender can discuss these terms with you in good faith up front, or if they remain unreasonable, may be forced to plead before a bankruptcy court later. Convince the lender that you are much more reasonable and less expensive.

Sometimes you will be forced to sign off on terms that are ripe to be abused. The need for capital may require you to accept terms that are risky. Be diligent about observing these terms, and know that you can’t permit the lender to abuse your rights or investment with shoddy, haphazard enforcement of their terms.