| 5 Tips for Getting a Business Loan

Posted in Business Financing at 9:00 AM by Loftis Consulting

Most small businesses will need an investment of capital at some point. Whether it’s to put more money into a marketing plan or push your business to go further and make more profit, business loans aren’t a must have. However, getting a business loan depends heavily on how you present yourself and the business. So, when you need money from the bank, here are a few tips on how to get it.

 

Demonstrate Your Reliability

If you’re an already established business, your bank will need to know they can trust you with their money. This means you’ll have to demonstrate how well your business manages money. It’s important to know your business finances inside out before stepping into that meeting. That way, you’ll be able to show how your business makes a profit and how you plan to stay in business for the foreseeable future. If your business looks like it’s falling apart at the seams and you need the money to survive, it’s unlikely you’ll be able to secure a loan.

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Be Specific

This is especially important for businesses just starting out. In order for a new business to get a bank loan, the bank will need to see a business plan. It’s no good just saying your building a manufacturing company when you can say you specialize in custom sheet metal fabrication. The more specific you can be, the more likely you’ll get the money. Businesses that provide a niche product or service are unlikely to have as much competition from other businesses. Therefore, if you have the only business of its kind in your area, you’re likely to get all the custom and high profits.

 

Why Should You Have the Money?

It may not be a question that you’re asked, but it should certainly be one that you think about answering. The more reason you can give the bank to lend you money, the better your chances. If a bank is on the fence about whether or not to lend, give them as much information as possible. Outline your future prospects so the idea of investing in you becomes attractive. Banks know that you often need money to make money, so demonstrate how you’ll use the money to make a profit.

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Stay Local

If you’re a small town business, don’t go to a national bank. It’s likely that national banks will have better prospects than you, so you may find that your business is overlooked. A local bank will have more time to consider your needs, and they look better if they’re investing in the community. It’s also likely that you’ll know someone in the bank who can put in a good word or is willing to vouch for your reliability.

 

Keep Your Own Finances in Order

There may be times when banks or lenders look at your personal finances before agreeing to lend. If you’ve got missed payments and piles of debt on your record, they may be swayed against lending. Try and keep your personal finances in order to avoid disappointment.

| Ways to Improve Your Business’ Debt-to-Income Ratio to Get a Bank Loan

Posted in Business Financing at 9:00 AM by Loftis Consulting

It makes no sense to begin a loan process if going in you don’t know or understand the key metrics lenders use to determine to who they give credit.  The debt-to-income (DTI) ratio is an important metric used by banks and other lenders as one factor in determining your business’ ability to pay monthly debts in order to extend credit.  The formula is as follows:

DTI = Monthly Debt Payments/Monthly Pre-tax Income

Make sure you include the projected monthly debt payment for the needed loan in your calculation.  The lower the DTI result the better; however, it will vary by industry since some businesses have to take on more debt than others in order to operate such as manufacturing companies versus professional service firms.

Once you have determined your DTI, and if it is too high for a lender to give you a loan then you will need to find ways to improve this metric before applying for the loan.  This will take time and discipline.

 

Steps in Improving DTI – Expense Control

  1. Review expenses and cut out any expenses that do not go to the heart of the business and any extras. It may be a sacrifice in the short-term but remember the goal is a loan.
  2. Review expenses and remove any one-time non-recurring expenses. You want the bank to focus on normal day-to-day expenses.  Major one-time costs could negatively impact the calculation.
  3. If you know that there are some major expenses coming up delay them until after the loan process has been completed since any major expenses will unfavorably impact DTI.
  4. Recalculate DTI based on steps 1-3. If not where you need it to be think of ways to improve monthly pre-tax income besides expense control such as improved sales.

 

Steps in Improving DTI – Improve Sales

  1. Review length of time it takes to sell inventory. If it is over your industry average look for ways to move it faster. For super old inventory put it on sale to improve short-term cash flow.
  2. Perform data analytics on customer base in order to target sales better. Loftis Consulting can help analyze your sales data for improved results.
  3. Get rid of slow moving product and increase amounts available to sell for products that sell easily.

 

Steps in Improving DTI – Other Tips

  1. Lower the loan amount requested if possible. This way you meet the DTI guidelines and if the loan investment will improve sales or make your operations more efficient you can get a future loan as the savings or increases sales are realized.
  2. Shop around for a bank that caters to your industry. An industry-specific banker will likely have more flexibility on the DTI requirement since they understand your business. Most banks want a DTI no higher than 36%.

Need help getting your financials in shape for a loan submission or need assistance with expense management and increasing profits, call Loftis Consulting today for the CFO Services.

| The Best Ways to Fund Your Business Expansion Plans

Posted in Business Financing at 9:00 AM by Loftis Consulting

Most business owners have big plans for the business and where they want it to go in the years ahead. That’s perfectly normal, but how are you going to find the money to fund all those plans? It’s easy to come up with plans for a business expansion, but it’s never so easy to actually fund them. It’s a problem that many business owners run up against. However, there are plenty of interesting ways to generate the money you need for your expansion.

 

Selling Shares

Selling shares is a great idea if you’re willing to relinquish a small amount of control over your company. You can still make sure that you own the majority of the company’s shares, meaning you retain control. Every share you sell will raise a small amount of capital. If you sell enough of them, and your share price is fair and reasonable both for you and you the stock market investors buying them, you could raise a considerable sum. This money can then be used to grow your business and take it in the direction you think is best for its future.

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Invoice Factoring

Does your business have a lot of old invoices that remain unpaid? It’s a problem that is all too common for businesses. However, you can get around this problem by using those invoices as a source of funding for your business. This is called invoice factoring, and it’s something that more and more small businesses are starting to make the most of. There are plenty of external companies that can help you out with this kind of funding. Just do some more research into it, and learn as much as you possibly can about it before making your final decision on the matter.

 

Appealing to Investors

Another way to get money from investors is to appeal to them directly. This involved presenting your idea and information about your business to a small number of investors. They might be investors who have a particular interest in your market sector. Or they might be venture capitalists looking to see a relatively fast return on their money. You need to be professional, have some strong ideas, and be able to present them in a coherent and appealing way if you want to make a big success of this. It’s not easy, but it can be done if you take the right approach.

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Reinvesting Profits

If your business is looking to expand and branch out, it must already be making money. So, why not start reinvesting some of the profits that the company is currently raking in? Rather than paying yourself more or paying out dividends to investors, you could use that money to take the business further and expand it in the way you want to. Of course, this only works if your business is in profit and managing to more than cover all of its existing costs. But if that’s not the case right now, maybe expansion shouldn’t be at the forefront of your mind anyway.

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| Is VC Funding Right For Your Business by Cole Sadkin LLC

Posted in Business Financing, Finance, Start-up Ventures at 9:00 AM by Loftis Consulting

Cole Sadkin LLC makes some great points to consider when deciding if venture capital funding is right for you and your business.  Check it out “Is Venture Capital Funding Right for You?

| How to Start a Business with Customer Cash

Posted in Business Financing, Start-up Ventures at 9:00 AM by Loftis Consulting

The Wall Street Journal had a great article on “How to Start a Business With Very Little Money”.  The article highlights ways a start-up can garner cash flow by getting customers to pay upfront as one recommendation instead of depending on loans or investments from others.  In reality, many great businesses were started with a little money from the business founders.  The types of businesses that can be bootstrapped tend to not be capital intensive.  Some examples of customer upfront models not mentioned in the article are:

  1. Gift certificates if your business is consumer focused
  2. Prepaid service bundles (i.e. discount on service bundle only if prepaid)

To read more ideas and examples, check out the article.

| JOBS Act Update: 2 Years Later, Where Are We Now

Posted in Business Financing, Start-up Ventures at 9:00 AM by Loftis Consulting

Rules under the JOBS act are still not finalized. The Washington Post article, “Companies, Congress grow anxious as the wait for crowdfunding continues“, updates us on the status of the JOBS act.

| Why Raising Capital Continues to Be a Struggle

Posted in Business Financing, Finance, Start-up Ventures at 9:00 AM by Loftis Consulting

This article published by CFO.com, “Demand for Venture Capital Outstripping the Supply” is a must read for companies seeking capital.  The article focuses on why raising capital remains challenging for many companies.  After you read the article, I would love to hear your stories regarding raising capital – – both the good and the bad.

 

| JOBS Act Investor Solicitation Rules Goes Into Effect Today

Posted in Business Financing, Start-up Ventures at 9:00 AM by Loftis Consulting

Finally, the day has arrived.  Today companies can advertise private placements to the general public using general advertising methods including social media; however, the private placements can only be sold to accredited investors.  Notice that I said accredited investors not just plain ordinary investors and this is a different funding source than through crowd funding which has a different set of rules.  Accredited investors are believed to be more investment savvy and thus have less rules but it is up to you, the seller, to verify that your buyer of the private placement meets this definition.  According to the SEC here are your options to do just that:

  • On the basis of net income by reviewing tax returns or through a statement from the investor that he or she expect to hit the SEC income requirements
  • On the basis of net worth by reviewing the investors personal financial statements showing assets and liabilities
  • Third-party written confirmations such as a registered broker-dealer, SEC-registered financial advisor, licensed attorney or CPA

Good luck.

| WSJ: Small Business Banking by Amazon.com

Posted in Business Financing at 9:00 AM by Loftis Consulting

In a recent Wall Street Journal article, the writer highlighted the fact that Amazon.com is now offering small businesses that sell their products on Amazon.com a financing option.  As with any credit situation, you should always make sure that the financing package makes since for your business.  To read the full article go click the link and let me know what you think.

 

 

| Why Your Small Business Loan Was Turned Down and How to Fix It

Posted in Business Financing at 9:00 AM by Loftis Consulting

In the current economic environment it is difficult to get a business loan but not impossible.  The first step after being rejected by a bank for a loan is to dust yourself off and ask the bank for feedback on why your loan application was rejected.  Usually they will be forthcoming for the reasons why they turned it down and you can use that information to improve your chances the second time around.

Many possible reasons exist for why a loan application is turned down but the mains ones are:

  • For a start-up business the business idea was not credible and as a result too risky an investment for the lender because their ultimate goal is to not only get their money back from you but to also earn some interest income.
  • For an established business applying to expand its existing business there are usually concerns that you will not be able to handle the extra strain on your business debts even if you are turning a profit. This means that you did not do a good job of laying out how you were going to afford to pay back the loan if your expansion opportunity did not work out and that your new opportunity is viable.
  • Not enough collateral if things go bad.  Most small businesses will need to provide a personal guarantee for business debts until they are more established.  From the bank’s perspective, if you have bad personal credit then it is likely that you will end up with bad business credit.
  • Lack of personal commitment by you.  One way to show your commitment is by investing your own money into the business.  I cannot count how many hopeful entrepreneurs who only want to provide sweat equity when trying to get others to invest in their idea. Good luck with that one.
  • Lack of a credible business plan and financial projections. Again, how can you approach someone to invest in your business through a loan and you haven’t taken the time to prove to them that your business is credible by having a detailed business plan on what makes your business credible.
  • Not understanding a “good” loan purpose.  The purpose of the loan should be very specific and not general in nature. For example, a loan to cover payroll will not be approved since the additional funds will not help the business earn additional income to pay the loan back.  However, a loan purpose to put in new machinery that will increase profits 20% is something that is concrete but will enable the business owner to grow the business and pay back the loan.
  • Not being able to talk the talk. You as a business owner must be confident in why you are asking for the loan and your ability to pay it back.  A bank will not invest in someone who is unsure of themselves.  Also, you are asking someone for their money, make sure you understand your needs and why and what the expectations the banker will have when doing business with you.

Use these tips and you should be well on your way to getting that first bank loan.  Loftis Consulting can help your business gain access to funds by working with you to build credibility in your financials and business.  If you need assistance beyond our tips, please give Loftis Consulting a call to schedule your free no commitment business review at (312) 772-6105.


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