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The bank manager just phoned and asked for full and immediate repayment of the line of credit because the latest, (and they were late!), financial statements showed continuing losses and falling sales. The company’s assets are eroding fast and the bank wants its money back while it can.
Now you need to find money. How will you do that?
The following 5 points illustrate what a potential lender sees and how to improve your chances.
You are one of thousands lining up at his door to ask for money for your faltering business. So you must stand out. Lenders do not share your enthusiasm for your business. Every borrower makes unbelievable promises just to get that much needed cheque. The business owner has doubtful credibility because the business is in trouble and the owner is always to blame.
- You need a plan. A written business plan, in order to be believable. You will need a business plan of at least 25 pages detailing your entire idea of how you will make the business work again. No false promises please - no lender will be interested in profit or sales claims that cannot be proven.
Lenders have no interest in a plan that merely returns a business to “normal”. Normal led to trouble once and now a radical change is needed.
The best radical change will be to illustrate a way to improve the business by a multiple (2 times or 3 times) and not a percentage.
- Business Turnaround - If you can turnaround your business, what is the big upside that shows a substantial increase in profits? Will it result in more cash, more assets, no debt? How long will it take?
If the lender hands over a cheque:
- How will you spend it?
- Will you take the cash and run?
- Will you repay your mother-in-law’s loan?
- Will the money be spent on things that will have an immediate return on the investment?
- Or are you asking the lender to share in the risk and debt?
- Detail the use of the funds. Are you buying newer machinery? Investing in a new product line? Lenders have no interest in buying other people’s debt, so the debt will remain.
Handing over a cheque is not the problem for a lender. After all, their purpose is to get money out and working.
- But how will they get the money back?
- Have you ever given credit (or made a cash loan) to someone and had load of trouble getting it back, writing off the interest in the end and feeling thankful that you got the original money back?
- Detail the exit for your lender. Give short time lines of under 3 years for return of capital. If you expect your lender to act like a bank and stay with you with lines of credit for the next 48 years, then go to a bank. Other lenders need to know how and when they will get their money back.
- The lender wants to know what you are offering in return for the loan.
- How is it secured?
- Your home?
- Shares in a stumbling company?
- Are you willing to give up control for a period of time?
- Be prepared and realistic in your offer to lenders. Detail the security offered and what the asset is worth today and will be worth in 3 years.
There are no guarantees in the lending world that your request will meet with success. If you have by luck chosen a lender who understands your industry and you have a believable plan, you might just leave with a cheque.
At Floodlight Business Solutions we understand what it takes to convince a lender.
Have you got a decent business that is in temporary trouble?
Give us a call to discuss your business turnaround strategies and we can help you Build Your Business.
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