One of the most common problems faced by many businesses today revolves around their ability to obtain the financing they need. This challenge becomes even more pronounced when we are faced with a tight lending environment. Since 2008, this has been compounded by the Sub Prime Mortgage mess and its related financial issues! This certainly has magnified the importance of maintaining a solid banking relationship.
Whenever one of my clients or a prospective client I am working with gets turned down on a loan proposal, it is imperative that we review the facts and explore “why?”
- Has your business been profitable in the past?
- How reliable are the numbers in your financial reports to the bank? Are they CPA prepared?
- What do your current cash flows look like? Have you completed some projections? Do the projected trends look positive or negative?
- Realizing I have mentioned this before: What are your plans for the next 12 months?
Business magnate and motivational speaker W. Clement Stone stated, “If you employed study, thinking, and planning time daily, you could develop and use the power that can change the course of your destiny.” This is worthy of consideration for any business.
I have never seen a loan turned down without reasons. All loan officers have a dual and often difficult role to play. They are attempting to accommodate your need for loan funds, while protecting the assets of the bank. If your lender is not willing to explain their reasons, there are other financing sources around. Sometimes a change in scenery is good for both parties.
- Financial History of Losses: This can be countered by a plan to implement changes. Suggest changes in your operation that make economic sense! Make sure you are making changes to get back to profitability.
- Lack of a Clear Plan: Author Basil Walsh said, “An intelligent plan is the first step to success. The man who plans: a) knows where he is going, b) knows what progress he is making, and c) has a pretty good idea when he will arrive.” Have a defined plan and established goals for your business!
- Maybe they are RIGHT! This possibility is tough to accept, but maybe we need to consider other options. Every successful business plan should also contain a clearly defined exit strategy to be implemented if necessary.
A banking relationship is crucial to your success! Be prepared to show improvement in your operation’s results and to illustrate a clearly defined plan with solid historical numbers and sound cash flow projections in order to acquire the financing you’ll need!