Ten Rules For Getting Financing Or How to Make Your Asset-Based Lender Think You’re a Hot Date
Once upon a time, in a land far away, businessmen went to banks to borrow money as well as to deposit it. ‘Twas an enchanted land, where money flowed freely and businessmen gamboled in the sunny fields every day until their limousines took them back to their adoring wives and families. We can only imagine what that world must have been like. In our world, there are no fairy tales or happy endings, just bankers looking fearfully outside their office doors concerned that they might meet a borrower.
Fortunately, there are still many specialty lenders who, because of their familiarity with their own lending niches, are comfortable working in a world of shrunken liquidity. Those specialties include invoice factoring, purchase order finance, letters of credit, business or merchant cash advances, and even inventory finance. If you have a business that could grow more effectively with a little financial help, here are the Ten Rules to follow that will make you more appealing to the lender you need. In the Art of War, written two thousand years ago, Sun Tzu writes: “Know thyself, know thy enemy. A thousand battles, a thousand victories.” Lenders may not be your enemy. Yet. But they ARE sitting on the other side of the table.
Rule 1. Remember that you are not unique, and learn to love lenders’ paperwork. The funding company has seen plenty of people like you before. It’s their job to look at applicants. If they want forms filled out, give them forms filled out. Why make things tough for the people who can give you what you want? Just as you size up the people with whom you do business, so do they. But they do it partly with paper, so that they can show that they took an educated, rational risk just in case you turn into their favorite mistake.
Rule 2. Take the time to understand how you will probably look to a lender. The Scottish poet Robert Burns wrote: “O would some Power the Gift to Give Us, to see ourselves as others see us.” Granted, Burns wrote this when he saw a bug on a lady’s bonnet in church, but it applies in the business world too. If you think about how you look from a lender’s point of view, you can begin to improve your presentation. Almost everyone has problems of one sort or another. What speaks most eloquently to a lender is how YOU are handling YOUR problems. This is not to say that you will automatically get funded just for being straightforward. But if your case is borderline, your attitude and preparation may well be the tipping point in your favor.
Rule 3. You don’t ask, you don’t get. But ask effectively. Have a clear story and a clear idea of what you need. Funding people appreciate applicants who know what they need and who can express it. They don’t want to help you tell your story, or guess what you want to do. The more precisely and clearly you communicate about your funding needs, the more easily funders can approve.
Rule 4. Remember that you need them worse than they need you. It wasn’t always that way. The subprime mortgage fiasco was derived partly from mortgage lenders awash in cash who needed to write mortgages as fast as they could. “They” needed someone, anyone, breathing or not, who could apply for a mortgage. If we live to see another silly season like that, get money as fast as you can, and try to avoid being buried when things go bad.
Rule 5. Learn what funders will accept and do what you can to shape your needs to match their comfort zone. Different lenders have different styles. If you can conform your needs to match what a lender wants to do, you’ll be ahead of the game already. Likewise, if you take the time to understand how a purchase order funder will operate, you will save yourself time when you want to get things done.
Rule 6. Realize that even if the process is new to you, it’s not new to them.
Rule 7. Be honest and be especially aware of what a finance company would consider important. We had an experience several years ago where a mining company came to us seeking over $20 million to revive a dormant mine. Two months of hedge fund due diligence later, we were one week from closing. The fund analyst had one final mandatory call, wherein he asked the company owners if there was anything negative in their past that they wanted to disclose. The owners said no, there was nothing to disclose. When the background check turned up bankruptcy filings five years earlier by two of the company’s owners, that was the end of the funding. One borrower explained to me later that he had forgotten about it and hadn’t realized its importance. The sad part (sad for us, considering the potential fee) is that this funding would have gone through if the bankruptcies had been properly disclosed. Instead, the background check led the fund to believe that the owners’ representations could not be completely trusted.
Rule 8. Don’t wait until the last minute to seek funding. There are generally two sorts of people who wait until the last minute. One type thinks that the finance component of the business is an afterthought after the deal is done. They are surprised when the order they worked so hard to get vanishes because they weren’t prepared to finance it. The second type really has a business, and the door opens to a newer, larger piece of business that requires quick action. If fortune smiles upon you in that way, maybe the finance gods will smile too.
Rule 9. Finance people want to lend. They just don’t want to wake up in the morning trying to figure out what you did with their money. But certainly, you can bet that everyone is looking for good people and entrepreneurs to finance. Be that good entrepreneur.
Rule 10. Be consistent and accurate. Goofy math errors or typos undermine your presentation. If you’re not accurate in your presentation, your lender will wonder how well you’ll count their money when it’s in your hands.
Rule 10. The Golden Rule is also good business. Do unto thy finance company as thou would have thy finance company do unto you.