Credit Release | How to make sure the credit crunch doesn't stunt your business growth
If you’ve been looking to borrow so you can better meet the challenge of today’s testy business environment, no one needs to tell you about the reality of the current “credit crunch.” And, if you are yet to look for a credit facility, you may be in for what may turn out to be an unpleasant surprise.
While the credit picture is more than slightly bleak, the funding faucet is not turned off. Money is available. With that in mind, here are steps to take to make your business more attractive to a lender:
1. Have a marketing plan that takes into account a tight economy. This is the antithesis of “go out and make more sales,” which is poor advice because it’s not a plan.
If someone were to ask you how you planned to repay a loan or make lease payments for new equipment, what would you tell them? Many times, business owners and managers give some type of general response that lacks specifics. What’s needed is a plan that’s on paper that describes in detail exactly what you would do to produce the necessary revenue. Then, you’ll be ready when it’s needed.
Because businesses acquire new equipment either to increase revenue or to reduce costs, here are several key questions you will want to answer in your marketing plan: If you are borrowing to invest in new equipment, for example, why is it needed? What benefits will it bring to your business? Is it to replace outdated equipment or will it allow you to enter a new market? If it’s a new market, how do you plan to penetrate it? If the new equipment will allow you to reduce operating costs, what will be the actual savings?
2. Get your company’s financials in order. Owners of closely held companies are understandably frugal. They almost have what seems to be an innate ability to keeps costs down. Unfortunately, that often extends to paying for such things as accounting services, which are sometimes dismissed as “unnecessary luxuries.” Yet, without current financials, you can count on being turned down when requesting credit.
Unless your financial house is in order, the chances of obtaining the financing you need at a competitive rate are extremely slim.
3. Demonstrate that you are serious. We have had such a long run on easy credit that it’s difficult to come to terms with the fact that the times have changed. It was only a few years ago that lenders were standing in line to “give” money to almost any business for almost any reason and on almost any terms.
Those days are gone. Today, lenders want to know that entrepreneurs are serious and they measure commitment in tangible ways. For example, a company needs new equipment, but doesn’t have room for its replacement until the old equipment is sold. While this is a real problem, letting it drag on sends the wrong message to possible lenders.
Last, it’s in any business borrower’s best interest to make sure the company looks good. Active participation in a trade association or having a professional and detailed website are indications that a business is serious and secure.
Businesses that are willing to take these three issues seriously have a good chance to obtain the credit they need. The “credit crunch” has something of a Darwinian quality to it; namely, those companies that are best prepared to thrive will be able to do so.
Edward A. Testa is vice president of sales at Greystone Equipment Finance Corp. in Burlington, a company that specializes in equipment lending and leasing. He can be contacted at etesta@greystoneefc.com or 888-894-4332.
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