Tips and strategies for business financing as we move forward in the 2013 economy.
Q: What skills will entrepreneurs need to make the most of the credit environment?
Many more businesses are learning the value of expanding into the world market, but lenders need a higher comfort level to help them with these plans. Entrepreneurs have to be visionaries who are able to clearly project future revenue streams, understand what infrastructure is necessary to support those streams and how to develop it, and what the net results of putting that structure into place will be. Then, they need to be able to communicate that clearly with strongly supported assumptions to their lender. The business owner capable of doing that will continue to grow no matter what the economy at large may do.
Q: With the economy showing signs of continuing recovery, has it become easier for small businesses to get financing?
Yes, lenders have anxiously awaited a turn in the economy that would signal it was safe to expand their lending to more types of businesses. I believe they have seen at least a few of those signs, because it has become easier for us to obtain financing for the startup businesses we’ve worked with this past year.
Q: Does an existing business’ performance during the economic downturn years make a difference?
Lenders are very conscious of just how difficult the past few years have been for businesses, and want to see how well a business handled it. For example, did revenues grow or at least remain steady? Did the owner make adjustments to protect the “bottom line”? And, has there been improvement over the last four quarters? If so, then a strong case can be made that the new project will benefit the business, and that the financing makes perfect sense.
Q: Most small businesses are self-financed. How can they avoid the mistake of being under-capitalized? Many entrepreneurs believe that if they have sufficient capital to cover all of the startup costs, their customers will keep them open and profitable for the next 50 years. Unfortunately that is just not the case. Every new business has a “breakeven” point – that moment when the revenue they receive is finally sufficient to cover all of the operating expenses. Until that moment, the business has to operate at a “loss,” and there must be adequate working capital available to get the business to that point and beyond. Often that “breakeven point” is much further down the road than the owner anticipates, and his/her resources are not sufficient to get there.
Q: How do you see the small business financing landscape unfolding over the next year or two?
There remain many “unknowns” in our future: What governmental regulations will small businesses face? Will the recovery continue or sputter and fail? What advances will technology bring? At least in the short term, I believe small business financing will continue to loosen up, though we will never see it as free as it was years ago.
Len Fischer, Founder, Benetrends, a leading firm that specialized in franchise and small business funding solutions.benetrends.com/ | @benetrends