Convincing Lenders To Believe In You
how do you earn credit for your business? It's never a one day thing. It happens over time. Your credit worthiness continues to grow as your business grows. But let's put ourselves in measuring your business, not from how you may size up your business. I bet you think how many customers are my serving is the measure of progress? What are my profits as the measure of progress? How many people are engaged in hitting your website as your measure of progress? We're gonna put on a different hat right now and think from the lender's perspective, how are they sizing up your potential and when they get more and more eager to keep giving you a better deal? When you want to negotiate better deal terms? First thing you're gonna notice one word on these charts, steady, steady, steady, steady. They don't necessarily love high flying companies. If you are a high flying company with amazing growth rates and customers maybe don't emphasize that too much to a lender. It's a fact. Don't overemphasize it...
because one of their fears is you may grow very, very fast for the first year and then everything tails off the second right. We want to convince them that your business is never a trend or just an instant kind of flash in the pan. So how are you measuring this on a monthly, quarterly or annual basis, emphasize it to them. It's more important for them to hear that over a period of time you're growing at a steady rate than of high variable rate, like up and down unless you're a seasonal business. Alright, let's say if you sell lawn furniture in things for summer where then your seasonal business, then the lender's gonna want to hear how you maximize revenue generation during those months and scale back immediately in your expense structure. When it's not that seasonal hit, you're managing your cash, positive cash flow. Remember some of those first slides from earlier segments about cash flow, It's different than net income and profitability. Cash is when customers pay your bills. The earlier you get it, the more lenders love you steady customer payments. They trust you to know who you're slow. Payers are no asset, write downs that a what does that mean asset write down. That sounds so financial. Sometimes I put up the loan terms to help you become familiar with how lenders talk amongst themselves and may talk to you. Isn't it terrible where people throw out words in meetings and you really don't want to sound like you don't know what they're talking about. So what do we do the nod. Okay, I agree. So that's why you see me throwing out terms like this, an asset right down is quite simply the value of your inventory is no longer worth what you used to say it was that's an asset write down. It could be a building. Unfortunately, heading into the recession wasn't there a lot of real estate that was no longer worth even what was leant against it? That's an asset right down. It could be property that's damaged. Unsalable has no customer base in general, lenders may force and accountants if you can't sell certain types of inventory within a year, they may write it down to a zero evaluation, steady loan repayment. Obviously if you've had a wonderful three year relationship with your factor, make the interest payment on time out of sight. Out of mind. That's the start of growing relationships with lenders, steady profitability growth. Again, the word study, they are not necessarily going to warm up. You don't have to over impress lenders steadiness, You don't have to over sell them or present something that's not quite there. Save that for when you talk to investors a little bit there. More of that kind of mentality. Okay. Merchant loans, what they do is as customers come and pay with a credit card, they're going to advance you some percentage of your average credit card receivables. It maybe over a three month period of time or a six month period of time. And depending different finance companies may structure as long as a five year loan based on your average credit card receivables or smaller, A one year term loan, Two year term loan. It will be structured around your business but is tied to the average amount of monthly billings that are hitting your credit, your company's website.