Are you thinking about how to get a loan to fund your company’s growth? Or if you should even consider it?
In a recent article, Sandra Simmons, President of Money Management Solutions, Inc. and a cash flow management expert widely known in the industry for her common sense advice to business owners, wrote an article about that very topic. Simmons shared some insights into what lenders will be looking at and what they will be looking for when they consider becoming the lender.
According to Sandra, there are a good number of cash flow management points to consider when you are thinking about how to get a loan to fund your business growth, especially if you are a small business. And she cautions us that taking on business debt is a serious proposition that “adds an interest expense and creates another bill that has to be paid on a regular basis.”
Potential lenders always want assurance that they will be repaid. Sandra says you can expect to be asked to provide a list of tangible assets that can be used to collateralize the loan, two to three years of corporate financial statements and tax returns, and a thorough business plan that includes industry market research.”
According to Simmons, the research should provide information on the overall outlook for the industry the company is in, the amount of existing and new competition, and the regulations that exist or are being proposed for the industry. In her article she states, “The lender will want you to have done your research to determine if the growth aligns with the long term strategies of the business. Market research can help the borrower determine the potential sales increases that are expected to be achieved, measured against what the additional cost of the growth may be in terms of equipment, building facilities and personnel.”
Simmons goes on to state, that while you are researching and answering those questions, you’ll also want to give the lender whatever facts will substantiate the projection. The lender will want to know the increases in revenue will be sufficient to cover the new costs plus provide cash flow to cover debt repayment and interest. Growth tactics can backfire and cause the failure of the business, so thorough research is necessary.
Lenders know that granting a business loan can make sense if the market potential is there to insure success and the assumed risk is minimized by collateralizing the loan. However, they also know that solid market research and disciplined cash flow management planning is vital to minimize the risk of default and to insure financial success.
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