The economy is improving! That is according the government’s statistics. “The US economy is making a big comeback, with GDP growing and unemployment falling” declares Business Insider in an article in March 2015. But, many companies and small business owners still see a hesitant growth.
In such an atmosphere, financing is a key to securing the commercial equipment a business owners needs to keep the business going and growing.
For those who are looking into financing their commercial equipment, the process can be confusing and difficult. Here are the top challenges business owners face when looking into financing:
Credit History – Credit history is the key factor in the financing process and is often the most problematic one. Although the history of late payments and judgments would seem like the biggest concern for a lender, other things are taken into consideration; how did the business manage through the recession and the company’s recent performance. If the business owner can show a history of commitment, the lender will be more open to exploring all possible venues of financing. Leasing equipment, for example, is performed sometimes even when the business owner’s credit is not very high.
Profit Margins – The competitive environment we are experiencing now has a tendency to limit the market growth, leading to weak profit margins. That is a sign that worries lenders because they are not sure the borrower will be able to make his payments on time. Keeping a steady flow of diverse work will help business owners get financing easier.
Growth and Working Capital – Fast growth does not always support a future business plan. Even though the previous performance was good, the communication with the lender should emphasize the present and future work. Detailed projections, a clear plan, cash flow, and strong management will help reduce the lender’s anxiety.
Personal Guarantees – A personal guarantee places the liability, if the debt is not paid, on the owner of the company. For the lender, it acts like a checks and balances system and a secondary repayment source. Today, many people are reluctant to sign a personal guarantee making it difficult for the lender to approve the loan. By realistically managing growth expectations, a business owner can minimize the likelihood that the guarantee will be enforced.
Transparency – Most lenders would like to see at least 2 years of financial statements, work in progress, and revenue projections. By providing a high quality and detailed information, the business owner already proves a sense of responsibility and transparency. It might behoove the business owner to get a 3rd party audit to show that the information is correct and was inspected by someone else, outside the company. When looking for financing to acquire commercial equipment, it is important to have all that information readily available and being open with the lender about the business needs and the future.