How to Make Any Business Financeable (Part 4 of 4)
We’ve spent the last few weeks walking through what it really takes to make any business financeable, from cash flow and profitability to debt and leverage. Each one plays a critical role in how lenders evaluate your business. Now, in this final part of the series, we’re wrapping it all up with the last piece of the puzzle – one that can open (or close) the door to funding, regardless of how strong the rest may be.
Over this four-part series, we’ve broken down the core ingredients every lender looks at before saying yes. Here’s the full picture:
- Cash Flow
- Profitability/Financial Trends
- Leverage/Overall Debt
- Collateral
Collateral is another factor that lenders look to. The company should have sufficient collateral to justify the loan, but collateral alone is not enough. The company must keep in mind that the lender looks at collateral as their insurance policy, not their primary means of repayment. Without the other two factors of cash flow and profitability, all of the collateral in the world will not convince a lender to lend money. They don’t want the hassle and expense of foreclosing and trying to liquidate the collateral. They want to know that they will be repaid. The collateral is merely a way for them to mitigate their risk in the case things go bad.
All that being said, having collateral to offer a lender is important. But the company does not necessarily have to tie up all its assets to obtain the financing. Different types of assets can even be used to obtain different kinds of financing. For example, collateral needed for an SBA loan may be very different than the collateral needed for a working capital line of credit.
One well-respected banking official explained it this way:
“We really want to understand the sustainability of a company…, which ties into the trends of financials and balance sheet strength (both business and/or personal) so that we have positioned the client and the bank the best not to have to go after collateral or personal guarantees should there be bump in the road.”
Demonstrating the cash flow necessary for financing and presenting the track record of profitability takes detailed financial analysis and the ability to communicate these factors to a lender on the lender’s terms. The company seeking financing should be sure to enlist the assistance of individuals who know how to perform these functions. Doing so can ensure the success of obtaining the critical financing the company needs; presenting the information improperly only burns bridges. You would have to wait quite a while to re-approach a bank that has already turned you down. Make sure your company is well positioned before starting the search for financing.
If your business is struggling in one or more of these areas, that doesn’t mean funding is off the table, it just means there’s work to do. The good news? Every one of these factors can be improved with the right plan. If you’re ready to make your business financeable and finally get the capital you need, reach out to our team. We specialize in turning “no” into “now.”
