??Comments (0)So, can businesses still get business credit in today’s market? Yes. In my opinion, banks and other lenders want to lend to small businesses – you just have to give them a reason.
Not only can this help some of these lenders with their own revenue streams but it makes good, solid, feel good press that might help lighten up some of the feelings that businesses and individuals alike have about their financial institution.
But, the problems that created this credit (and ultimately business loan) lockdown by lenders of all types is still in play.
Economic growth is flat or slow. Consumer spending is flat or slow. Government regulation (especially regarding banks and similar lenders) is still overbearing. And, probably more important, banks have spent the last three or four years finding other ways to generate revenue besides underwriting loans (business and consumer).
On the other side, businesses seeking capital have pulled back as well. Many businesses that have survived had to do so with less outside help. Thus, they are lean and mean. This means that they have found ways to maintain their businesses without business credit (without the help of their bank or lender).
Combine these two situations together and we have the poor small business capital markets we have today.
However, there is always a silver lining. Less demand for business loans means there is less competition for these loans and less claim to lenders time; further opening your chance of at least getting your deal looked at.
That’s the easy part.
The hard part comes when these financial institutions do look at your deal. Is it something that they want to fund? This is where your business and entrepreneur savvy will come into play. If you have it – use it.
There is an old saying that banks and other lenders will usually fund a loan to a business that does not really need it; meaning that the business has its own cash flow and does not need outside capital.
So, one of the best ways to ensure your business loan deal does get the double check and possibly funding is to show or demonstrate that your business really does not need the money – even if it really does need it and needs it badly.
Many businesses that don’t need funding still seek business loans when it makes good business sense to do so. When a business has a project that needs funding, it can either use it own funds or seek outside capital to complete that project. If the business has already earmarked its own internal funds for other issues like marketing, development or expansion, it may seek a business loan to fund the project – provided the project will, in return, earn an acceptable level of revenue that covers the cost of the loan as well as hits the business’s internal rate of return hurdle. Never use your own money when you don’t have to.
Thus, the lesson in seeking a business loan in today’s credit market: Seek to fund projects and not the entire business while showing that your business could do so without their (banks and lenders) help.
The idea is to show how this one project can, with the business loan, generate enough in return to repay the loan and make the business a little profit. This keeps the lender from spending to much time on the rest of your business or digging to deep into your credit or personal financial situation.
Show them the project, show them the merits and potential returns of the project and get them to underwrite nothing but the project.
It all comes down to how you market your loan request. Just like marketing your business, you also have to sell your business, your management and your deal to the lender.
Do know this is nothing new in the world of business. Many small businesses have developed larger than life personas for their companies; companies that play in the same space as the big boys and are seen as equal to them but may only have a staff of one or a marketing budget that will barely buy a cup of coffee at Starbucks.
Do the same with your bank or lender. Show them that your project is bigger than life and that they would be stupid not to fund it.
Far too many businesses want an all-inclusive business loans to meet any and all needs (past, present and future). This is a huge red flag for lenders – it just represents too much risk.
To mitigate that risk, break your funding needs down into manageable and fundable projects.
Here are three things to keep in mind:
- If your business needs funding to purchase equipment – then only seek funding to purchase and implement that equipment. Or, if your business needs working capital to bid on and complete those next level deals then only seek a business loan to accomplish that goal and that goal only. Then, slowly move through each project or funding need until your business has all the outside capital it needs to grow and succeed.
- Take the focus away from your business and place it on each project or each need. Just like selling a new product line in your business – your marketing focuses on that singular need and the benefits one can get from that line – not from your overall business which is too general when targeting a certain set of consumers (or in the case of landing a business loan when targeting a lender for a certain need).
- Focus on lenders that specialize in particular areas of business funding. Looking for an equipment loan, look to an equipment lender. Looking for a working capital loan then look to a working capital lender or seeking a business loan for inventory then find a lender that specializes in inventory loans and that does not want to take a chuck of your larger business to boot.
Breaking down your funding needs into manageable and fundable projects allows both the lender and your business to focus on the merits of each – better allowing you to understand your needs and potential returns as well as allow the lender to focus on a less risky subset of your business and not your entire company which might have a flaw or two.
In the end, you simply have to show them that they need your business more then you need theirs – the rest is really easy.
So, can you still get a business loan in today’s market? Yes – you just have play to the situation (or the cards you have been dealt) by making them want to fund your projects and ultimate fund your entire business.
