Why Some Businesses Obtain Loans Easily

As a small business owner there are times when you will need a loan to keep the business going.  Some owners will plan and consider applying for a loan when they really don’t need it immediately.  Others will wait until the very last minute, and then they are turned down with no other place to go.

But becoming bankable will take a while even a few years.  Here is why I say that:

  • Of course, you realize that banks like to see a business that is profitable and being well run. Having your finances in order, and taxes paid and current, is the best way to demonstrate that you are running a well-managed business.
  • Owners who want financing yet show very little revenue, a net loss, or have been delinquent in filing taxes perhaps for years, will be turned away.
  • So, what will make you bankable? You should have at least three years of positive financial information on hand.  Often, business owners will try to minimize revenue as a tax planning device to reduce profits, but this strategy can work against you when you seek outside financing.
  • Raise both your personal and corporate credit score by reducing credit balances, paying all debt on time, and avoid applying for new lines of credit during the preparation period.

This process can take several years; therefore, it is important to get sound advice from an accountant and a business banker early and often.  The path may be difficult, but it will soon lead down to the right one.

Are You Thinking of Buying a Business?

Some people often think how great it would be to be your own boss and own a business.  But some want to start their business from scratch and develop the business using their own creative genius.  Others would simply purchase an existing business or franchise because they can more readily see the potential success of it.

If you have decided to start by  acquisition, you should consider several things when preparing and researching the purchase of a business or a company.

  1. A strategic plan must be developed.  Writing this plan will help you analyze and develop and define your market segment and see where you can differentiate your product offerings, distribution channel or customer service.
  2. Consider the perfect seller. Working with your advisers, develop a list of companies or a business that match your strategic interest.
  3. Consider the corporate culture of the target and if that culture will blend with your company culture.  Will the two companies welcome change?  There will always be a need for motivation and training to meld the two cultures.
  4. Look at your technology, is the infrastructure up to date and will it be able to absorb additional employees? Are your email, CRM and ERP systems ready for an upgrade?  You may want to acquire a company because it has more advanced technology.
  5. What are the policies & procedures of the target company, and do you have policies and procedures in your own company or business?  Can the policies be easily incorporated? If not, then look for a company that is process-driven so that the resulting businesses can scale more easily.
  6. What is the competition like?  What will your competitors think when they hear the news that you have purchased that company?  Will they be frightened for the forthcoming competition, or will they laugh because you will spend a lot of time melding the businesses and be distracted from competing.
  7. What about product integration? You will have to review this well in advance of the purchase. Can you develop an analysis that identifies any potential shortfalls in your current product offering?  Will you have created confusion among your customers because you have created competing products which they may not be willing to pay for both products?  Could you have created a new set of competitors?
  8. Once you have identified the target company and may have generally discussed deal terms, you need to organize your thoughts in the form of a letter of intent.  Your adviser, lawyer and accountant should have lots of input on the precise deal structure to meet your goals.  After the letter of intent is accepted the due diligence process begins and then the definitive asset purchase agreement or stock purchase agreement will be crafted.  There probably will be a few drafts of the agreements negotiated, but once the agreements have been signed,  the buyer’s bank will confirm that the money has been wired into the seller’s account, and the deal is officially closed.
  9. However, the due diligence process mentioned above must be managed and followed to make sure that the seller’s questions have been answered.  This list of questions is also referred to as the due diligence checklist.  Once the letter of intent has been signed, your advisers will guide you through the sequence of meetings and data requests. All due diligence items will not be delivered all at once.  You will want to see the financials of the target and the financial projections, as well as customer lists and performance. The buyer will need to coordinate multiple on-site meetings covering topics such as technology, product management, finance and customer contract review.
  10. After the closing there is more work that has to be done to integrate both cultures as well. Starting during the due diligence period, key individuals will be organized into teams to to combine technology infrastructure, corporate locations, product lines, sales and marketing teams, corporate messaging, personnel policies, etc.