The time to look at financing may be upon us again. If you thought banks weren’t lending, think again. That’s their business, and financing growth is part of how they make their money.
Commercial banking divisions of national banks, and other regional banks are again underwriting small business debt needs. However, if you are considering taking on debt to grow your business, make sure you’re financing growth and not just patching a hole.
Cash Flow, Long-Term Financing
Good businesses understand how essential cash flow and long-term finance options are for fostering planned growth. Unfortunately, too many businesses are struggling to cover basic expenses like office space, new employees and financed inventory.
You could save a little money each month to cover additional expenses, but that approach takes time and isn’t really a viable option if growth and opportunity exists for the business today.
Many business owners have self-financed or boot-strapped their businesses through savings, 401k’s and home equity lines these past few years. But with those investments running low, it’s not prudent to keep tapping into them.
Visit the Bank
Many U.S. banks are healthy and on the lookout for ways to earn more money in the form of good, secured loans. They’re in the business of financing growth, and it’s in their best interest to find out if they can help you.
Approach several banks, including your own current business bank. Underwriting guidelines vary by bank and even by type of business, loan need, interest rate and how the loan is secured.
When you visit a bank, be prepared to bring a couple years worth of tax returns and a copy of your profit and loss, balance sheet and a cash-flow statements.
Also, in the process of obtaining a loan, construct a business plan that shows how you’re doing, where you’ll use the money and how you’ll pay it back in the best and worst case scenarios. It makes sense to provide detailed information to the institution that is prepared to lend to you, and they often require it.
Lines of Credit
If you simply need to replace a cash gap created by accounts receivables, then a line of credit may be enough. The issue with a line of credit is that once per year it needs to be back to a zero balance.
For longer term needs like hiring employees, who are fixed costs, expanding into a commercial building or other items, you may need financing that spans longer than a year – in the form of a three- or five-year note that is more like a formal loan.
Talking with a strategic planner about what your true cash flow issues are is highly recommended. You may even want to visit with a strategic planner and your banker together about financing growth to find out what’s possible and what makes the most sense.