Make Your Case to Fund Growth
While the current economy has turned some businesses sour, others are still growing and in need of cash. Some may want to fund an expansion, build a new warehouse or buy new equipment. Others may be growing so fast that their cash flow isn't keeping pace with their growth in inventory and accounts receivable. Still other companies may be approaching a transition and management is interested in funding a buy-out.
These are all valid reasons to seek additional financing, and historically, executives would be greeted by the bank with open arms. Unfortunately, given the current economic situation, banks are looking at all loan requests with a new, hypercritical eye. Lenders certainly don't want to end up owning the loan collateral, so they are being extremely careful with the loans they extend.
Start with Existing Banks
The best place to start a search for financing is at your company's current bank. It's a good idea to get a better understanding of the products the bank offers. For example, the bank may have a leasing department or a capital finance division that would be a perfect fit for the type of loan the business needs. The existing relationship will likely make a new loan easier to obtain because the bank already knows about the business, its management and its strategic plan.
A Second Institution
It is possible to use different institutions for different types of financing. A second financial institution may have an asset-based lending division that fits the borrower's requirements, or it might have a division that specializes in subordinated debt. While there may be start-up fees or other costs involved, consider an institution that is more open to certain industries or willing to take on a different type of exposure.
Non-bank funding — investment by a private equity firm, for example — is also an option, but it has proven difficult to obtain in the current economy. However, this route is likely still available for very focused types of financing in specific industries, particularly if succession or exit planning is being executed.
Work to Show Strengths
It is a given that the company's financial picture must be sound in order to obtain any type of loan. What is often overlooked, though, is the non-financial story. Financial projections and documents must be backed up with a concrete plan for attaining the financial goals the loan is intended to enhance. It is imperative that the company articulate its competitive advantage and its tactical plan for continued success.
Moreover, it is extremely important to convince lenders of the strength of the entire management team, not just the CEO and CFO. The leaders of sales, marketing, technology, operations and production should be prepared to meet the lenders and explain how their areas will support the company's growth and success.
As trusted advisors, the company's CA firm can help guide the financing process by not only assisting in preparing documents and projections, but also by helping the management team prepare for their presentations and discussions with the financial institution. In some circumstances, CAs can even help the company “shop” for loans confidentially.
The key is to be able to show real-life plans, competitive benchmarks and cost-reduction strategies that will make the loan a winner for the bank and the company.
Our firm would be happy to discuss your company's financing needs and options. Contact us to set up a convenient time.