No your obligations alone covenant loan covenant this is the tricky stuff these were usually where those surprises are gosh, I didn't know I had to do this alone covenant obviously you want to pay back the lender and you find more more of these loan covenants the's sneaky loan covenants in finance company deals the nun regulated lenders they want you to do other things and if you don't do these other things what will they d'oh it's borrow from the business credit cards? They will instantly increase your interest rates we're charging a different faith or reduce your advanced race something's going to happen if you fall out of compliance with the fine print of loan covenants so in the individual who um chatted in these are the areas where I want them reading so even if a lawyer here's the danger if you hire a lawyer it could be completely standard language in that loan agreement but if that is not communicated as a responsibility to the business owner and I can see how this happens the l...
awyers looking for things that are outrageous or non standard but somebody who looks at loan agreements all day long may say, well that's a standard request but if you don't understand that I'm g I didn't realize I was supposed to do these things now either you know higher interest rate so what are these sneaky things out there? What are some of them? Um top of the list you are probably going to find some language that you have to supply financial statements on your company at some routine basis and you should ask is that profit and loss statement cash huh what is it you want as part of that financial package asked the question you're responsible is it every month every quarter every this every that and who does it go to and when might you be late all right suppose you're late you know you're going on vacation what do you do my recommendation you call the lender in advance said by the way I mean even say I'm going on vacation I cannot get those financial statements to you is it okay can I get an exception to the loan coming when you asked before better chance when we're saying how do you get out of this stuff there are times when you won't be able to do everything so ask and let them know in advance not when you're delinquent keep the trust lenders trust you the last thing a local lender wants to dio especially on this stuff it's have to say to his or her boss you know so and so is out of compliance because then things start to happen their workload gets bigger so stay ahead of the curve don't feel like oh my gosh the best thing for me to dio is stick my head in the sand! No no no no no you'd be amazed if you call in the fans, you're much more likely to have the best relationship keeping property in good condition suppose you borrowed for equipment of factory of this or that they want to make sure that that equipment is available to them. If something goes wrong sometimes for specific types of equipment, especially of leases air involved, you may find some fine print about maintenance applications that must be done on a structure basis. Just look for that kind of language and meet those obligations, or if it's some unreasonable or not applicable negotiated out say this doesn't apply it's not feasible it's not practical don't wait until after you signed the loan documents to say to re negotiate, do it before you sign maintaining certain types of net worth or a little later, we're going to be going into some ratios. Some of these ratios and network things may be impossible for you to achieve at certain times of the year, especially if you've a seasonal business. So think through and say, change those numbers, right? No one knows your business better than you, especially if you're a seasonal business it may drop down in certain periods of the air below thiss and all for a good reason it's not necessarily a sign of peril but a sign of strength just read it, understand it, and this is the situation where you might want to involve your accountant to think creatively when might we fall out of compliance to make sure you are equipped with the best information um you may have restrictions on taking on more debt after this first step you may have restrictions where you have to go out and buy an insurance policy on your own life but if something goes wrong the business can recover and get be fully paid off all these certain things guaranteed of other personal obligations you may be restricted from buying a house okay of taking on more personal debt and those I would vigorously fight against so again, the's shouldn't scare you but just be aware of them so when they come up you say you know it really doesn't work here because of this can we do this? All of this stuff is part of many loan packages it may not be relevant for you two today but I see big things for your future this could be a part of your future make it work to your advantage oh, another thing I hate loan agreements that prevents you from selling your company why I'm an old investment banker someone offers you an awesome price for your business you take it you know, like ten times what you ever thought it was worth take it I don't want to go to my bank who's worried about now losing alone relationship especially since the debt could be paid off by you know selling your company partnering your business all right I might give the way on that one they can it's very understandable if part of the assets to your business could be sold if they have a blanket security agreement but in general I don't want to have to go to my lender for approval to sell my company or key do partnerships don't like it I want the ability to move and teo make those decisions on myself because whenever you have to ask somebody else slows things down and then they get to ask for something help I need funding for my website revenues I think getting these this how they come to may I'm not kidding okay gotcha color big bachelor all over the web now you might see fund your receivables are you a website or you may get a notice through your own email addresses under contact you saying you can fund it fund your customers your credit card receivables come to us it may be a scam it may may be a scam who could be scamming what do you do when you fill out loan applications? You give your business checking account some of you may have them I hand over your so security number right as part of a loan agreement you may tell them how much is in your business bank account at that moment okay how sophisticated or hackers these days you may have given the keys to the kingdom, you may have told them there where your bank iss and you know, and that you do online banking. Hello, small business owners are prime areas for attacking from hackers your money in your business banking account could be in russia or tire god knows where tomorrow and guess what most? There are some exceptions. Banks are not obligated to cover fraud and theft from business bank accounts where as they do for consumers. So where's the vulnerability here there are legitimate online sources of funding through websites, but before I'm just doing a big alert here, because how devastating would obey if your business bank account was wiped out tomorrow and you could not get it back? So here's what I'd like to have everybody dio beforehand again, I'm saying, sure, there's going to be people who are stunning behave now I'm legend about you know you, but let's be smart shoppers I want you to see before you put in your bank account information to a name you've never heard of before that promises to fund your credit card receivables that come from your website. I want you to go and see if there's contact information if they do not have a phone number where somebody answers in that business name. Would you really want to put your information there if they don't have an address and then you khun somehow verify it I would not put my company's bank account information tax I d number things that would allow them the ability to set up new credit maybe even end up applying for the small business credit card that I don't to blind for right? Check them out there's so many new resource is out there any could look so sophisticated and so easy and those online tools that the easier it is for somebody to give you money beware make sure they are legit this is happening too often these days and you don't get that cash back well you get to do is call the police the fbi and be really upset with yourself it's so not worth it because who who goes to them the businesses that need that cash the most my peeps right? Okay, we make sure it's legit read the application closely again for the comparison shopping be able to print that stuff out you can't print that agreement suppose only half of the agreement comes out don't sign it don't click the box but could you see yourself doing this so easily not worth it monthly loans her very balloons again most of these credit card receivables or co quote merchant loans I can't emphasize enough there I don't wantto say all of this is bad but for example, you can find merchant loans, credit card financing, relationships through american express through most banks, america most finance companies, there is a big difference and race monster, big difference and breaks and phase for everybody doing thesis ame thing financing your credit card receivables or your website sales questions on this, you're smiling at me. What are you thinking? I'm just saying, you've covered it very completely, I think it's a really good information, good just where shoppers don't take your first deal. I want everybody shopping for three deals, three comparisons I think we have some questions earlier. I think janu was saying that you felt pressured to accept I know that you are offered on that. Have you shopped around? You might lose that opportunity of actually securing that not in the sense that they're saying sign now sign now, it's really more of the pressure off. Yeah, exactly of not being not being trying to think of the right wording off feeling the pressure that that's the only place to go. Exactly. This is great if ice to shop around and it's shopping around and not feeling intimidated to ask for a better deal. You know, that's what I love when I get notes, and then people do it. And once you do it it starts getting so easy you get addicted to the getting the better deal and you're the amount of pride that you feel yourself when you've overcome kind of your own hurdle and more things open up more things become possible if you have the cash to do it and I really believe that everybody here can do all these things I'm talking about you know the terminology baby new but you get with thereafter and you get the implications to you here's something and you brought this up are you two going to be talking about factors factoring really comes from the garment industry where a lot of clothing manufacturers would turn and sell this is a slight wrinkle and actually factors are expanding the types of businesses that their funding today it's not just the garment center you know where people who are shoes hats, purses stuff like that it comes out that way because they became very familiar with which retailers were paying their bills how is factoring in the old school term different then receivable financing or credit card financing or your online website um customers getting financing very important thing in one case in the farmer whatever if you have a million dollars of receivables from lots of different customers the bank or finance company is going to give you the money and you pay back the bank as your customers pay you what's different about a factor and I could see if you're selling a product, this may be a place to go what's different about factoring is you sell your million dollar package of receivables to a company at a discount and it is their job to collect from your customers. Do you see the difference? Who has the risk of some of your customers not paying the bills? The factor not, you know, here's the pros and cons you really have an interest in continuing to maintain a good relationship with that retailer, so you never know suppose you're doing business with bloomingdale's or toys r us or a grocery chain regional or national or doing business overseas. You don't want somebody pestering and upsetting the relationship to you, and the factors may insist that all you sent a note all your customers saying no, no, don't send your payment tow us you send it to what's called a lock box that they control. I don't want you to eliminate this from your cash cocktail because sometimes you confined some awesome deals for cash, for your receivables from factors but appreciate what they do is slightly different than what banks dio and the timing and who collects because they now own your receivable you don't, so would you be more motivated if you know you're selling off the receivables at a discount to agree to all kinds of loan covenants from them? I wouldn't yet they're going to be there his why not? Do they really care whether or not you buy a house or a personal guarantee they bought this? They bought my receivables they're responsible they're on the hook so in this case I would say I want to see empower ment I want to see negotiating some of the things that may be in the agreement the elation matter they bought the receivables at a discount there covered already their job the risk is in the collections so again empowerment for you negotiate to your best advantage when it suits you best. Yeah, well, you know, I think this is something I do use uh, can I go back and renegotiate my contract with them? Usually I suspect that there's a specific loan term that you've already signed is part of the agreement. Um, beginning an end period, I don't recall that. I know that I know that when I, uh I send in my request for payment, they wire the money to the bank and then, you know, I pay my payroll and then they collect the money. It's been a very good relationship that I've had, so you know what? How long have you been working with factor? Oh, three years. Awesome, yeah, I would say two years ago you should have gone back, okay, right here's what you have now presented to them your reliable your customers pay their bills, you're in business. Why not shop for a better deal? Tweak it right? You have got the history now. No, I think go back and say you don't have to worry about me anymore let's talk well, I don't want you I want to talk from a point of strength. Ok? They always worry about you in their business in the credit but why not present? I want to give you a sit down and give you an update on our business and where I'm taking it in the future and how my product or service you know things that we're doing even better set the table of why they don't want to lose you. Because when you come in there like that, you have just made a big alert oh here's a shopper! Yeah, if we don't take steps to keep her in what she going to d'oh she's got a great business, it's obviously creditworthy. We could lose it now I am very loyal. Having said I love to shop, I believe in giving anybody who I'm working with first crack, I always go back to them anybody who has done great work for me, I turned to them first give them an opportunity to keep your business let's say they say you know, we really can't change the deal terms and I'm sure you're going to hear that and say ok, so and you don't fight with him don't threaten to take your account elsewhere smile say you know, I've really enjoyed working with you and we'll keep doing it and then what do you do tomorrow? You go out for at least three, you get other deal terms in term sheets and then when you're barely clothes, you get back to the other one and say by the way and you don't tell them who you got it from, especially in the factory in world say I've got a quote and a proposal that offers me this isn't business can you match it or beat it and you walk if they're not willing to match or beat it that's impairment? I don't argue with people if they can change things right, but I'm gone I'm looking elsewhere, I don't unwind the relationship until I have my ducks in order I don't threaten I don't criticize I like happy like smiling, you just smile, not line up something better because you never know next month they may change the tune or a new opportunity may come across your company that that is that perfect funding fit again that's how you talkto lenders or even investors don't get upset because in a way you're also presenting a persona of business promise this's how this businesswoman presents herself to her customers and our vendors and her partners and she means business and she's serious about the business of business it is truly your best foot forward. You stand tall and be really proud about what you've accomplished and keep it simple here's what we've accomplished in business, our revenues have groomed by this our gross profit margins have increased two percent over the last year. We have diversified our business from this to this our partners throughout this just check you don't have to dive deep here's where we're going here's how I want to expand so you might say our business we have perfected our business model in the next five years we will be opening up three to five different education centers we anticipate that we will have an equity component to our business expansion and we will not rely entirely on debt. But here's, what you can count on from may number bubba bomb will continue to give you financial statements in order we're bringing on a new accountant they love hearing that a new bookkeeper stability and growth not too much excitement, they don't want to hear uber growth that's is we're going to talk in the next segment what are things that scare lenders speak with pride? I love to stand up, we haven't noticed so if all the lenders air sitting down I'm standing up in every meeting if I'm ever brought in to help somebody raised my I'm standing up I'm in charge you think that way they will respect you because a lot of lending is sizing you up personally and your capabilities it's not an exact science you're part of that max embrace it and don't be afraid of him do you think can you dios everybody yeah yeah absolutely any questions on factory did you expect that you would learn about factoring no know how my vendors ask me for a letter of credit? What is it a letter that's usually what people get weaken region it weighed you know okay, there are different kinds of letters of credit but I'm going to mix it up in this global marketplace there will be times when you will be selling I'm switching it now I'm putting on a protective hat I can see andrea having multi million dollar orders overseas for her and lay brand or through lex details where they may not pay up front all it wants do I want her to book that business? Yes do I want her to lose the value that business by shipping goods offshore and potentially not being paid for it? No I want her to ask for a letter of credit in reverse what her letters of credit there may be some of your customers it will not be able to pay their bills right up front, but they're different types of letters credit and they're essentially contracts between buyers and sellers where an independent entity sometimes it's a bank will verify if you're shipping goods overseas if they're received okay payment is sitting in red escrow it will be released to you so don't assume some of the financing tools or all way you're asking you know you've got to somehow give up everything there will be situations in your future where I want you to use some of these tools good to protect yourself and to ask for them to minimize the risk of non payment because haven't you heard throughout and it's coming up in the next segment? What do lenders care about your customers? Pain their bills is so much about what can unwind great funding relationships or hurt you tremendously in your ability to pay back lenders on ly you can protect you must size up the ability of your customers to pay and there may be some unbelievable terrific business opportunities in your future where you may aggressively asked for more security on your own behalf down payments or best but for other kinds of opportunities that especially involved international shipments maybe you should be the one where at is should ask for the letter of credit which is really a backing improve and confidence that you will get paid different change, huh? Coming up in the next segment we've got what lenders love do we have some questions from? I feel I know we've been diving deep into certain types of tools but we're going to talk about how to present and talkto lenders a little bit more interesting questions that muscle in various different things that we've covered not only this segment some earlier ones as well. Dave mack and an interesting question is this is something you dressed in an earlier segment with somebody else why is it always a perceived that women in business find it harder to get loans? I think you said that's kind of a myth because they don't actually ask that's the problem I mean we are in a post feminist world that dave mack is saying is there such a thing as a preference towards my preference towards minority women in regarding to seeking business votes reference or discrimination preference towards because back here would like to be seen to be supporting? I would say that some lenders like to promote that part of their portfolio goes out to women or minority businesses um do I think it's not legal toe have that preference in their loan decision process but overall I go back to for any business owner when so much of your cash is tied up in relent lending relationships and the cost of cash is high you have to be motivated to shop three is my minimum for any kind of lending relationship, I want you checking at least different three different sources at any time. There are some lenders out there, I've talked about microfinance organizations, some of them specialize in providing loans to minority women, and you can find out some of the names of these that start on purpose dot com on regionally, I would not I like to bank on the relationship itself and just go into something not assuming it's for women or for men or minorities or not, and just go and get the business. The reason for them lending to me should not be a because I'm female or because I'm doing any particular thing it's my job to present my company as a great customer relationship for that lender and not think that I am at a disadvantage. No, my advantage is I've got a great product or service, and I've got a growing customer base and we're profitable and our profits are growing. You want to do business with may that's the attitude of success, that's what I want people kind of dialing into first and not female minority itself. If there are opportunities where you could get super discounts because of a special program, you go there, it's all about shopping to your advantage.
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Susan Schreter is a veteran of the venture finance community with expertise in the life cycle of financing companies from startup to sale. She is an MBA-level educator, expert on the factors that influence startup success or failure, and popular
Susan is an amazing woman! I am so grateful for the information she has provided in this class. Without her I don't know where we would end up. She has opened so many new doors of opportunity for our business. I am beyond happy with this course and highly recommend it to everyone in business who wants more information on the various types of financing. She has certainly given us so much to work with and it will definitely make a difference to our business and our future. Thank you so much for this wonderful course and I look forward to seeing more from Susan in the future!