By Parag Nevatia
Many of you may remember the late 1990s when there was a big uncertainty buzzing in the financing world, specifically the coding of computerized systems, called the ‘Y2K bug’ or the ‘millennium bug’.
There was a mystery about what will happen on January 1, 2000 when the century would reset into another. The worlds’ smartest engineers were optimistic and hopeful that the world wouldn’t lose all its data.
On the morning of January 1, 2000 when companies realized that business was as usual, and all of the computers started just like any other morning, subsequently a new fire had spread in the financial world. Alongside the Y2K bug, there was also a technological boom in the business world, leading the mindset of professionals and entrepreneurs into doing…more, something grand.
Thus, the relationship of technology and money. Business loans were being given to companies with just 6 months business history, some given out blindly, causing shortsightedness in lending. It was almost like raining money for entrepreneurs…and many other individuals.
This hype went on for a few years until 2008 when a major correction, which brought about one of the greatest depressions of this century. Ever since the end of it, the market has fortunately seen an upward trend again with: companies being more profitable, unemployment levels dropping, return of construction as support to an increase in real estate values, and the drop in gas prices—all of this eventually giving rise to consumer confidence as people would have more purchasing power.
So what were the lessons learned from all the ups and downs between 2000 and 2008, and beyond?
In this month’s article we discuss some of the challenges that still linger, some which have never been corrected, within many banks. Here are some of the problems that exist, but are not visible to the borrowers:
Many loan projects are just not prepared well. A bunch of financials called a ‘loan package’ doesn’t really mean the business is ready to apply for a loan, especially in today’s credit environment. Between 2000 and 2008, loan packagers did exceptionally well but the question now is: are loan packages enough today? Of course not.
Not presented correctly
Most business owners do not present their “case” correctly. Correctly means to: prove exactly what the money is needed for, and how you will pay back the loan through cash flow or in the worst case collateral; resolve financing-related issues and hurdles up front; and prove how your project will benefit the lender as well.
Where’s the security if the business fails? Where is the logic and creativity to make the project appear realistic, beneficial, and profitable? Once the entire project is in the bank, entrepreneurs rely on bankers to present their project to the loan committee….and this is the make it break it point. Just make sure your support system at the bank is prepared to clearly answer all your business-related questions that arise at the table!
Many entrepreneurs are delusional about credit. They are still stuck in pre-2008 era, when it was raining money! We certainly hear the talks about how great banks were 15 years ago and how evil they are now. Business owners have this belief that the banks need to give them loans to grow.
I’d hate to be the one to say it, but in reality lenders are now more stringent in lending because they’ve become……wiser. Wiser in the sense that they are no longer shutting one eye before handing out money to businesses that have severe blemishes, or are struggling to obtain credit.
It’s important for entrepreneurs to understand credit, requirements, and the exact reasons why the loan request is being denied if that is the case. I wouldn’t give money out if my sixth sense told me that there are chances I won’t get my money back…with interest.
Another misconception is that every bank should be able to give a loan to every business. Wrong! A bank is not like a gas station that wants to sell gas to every car that comes in. Different banks have appetites for different industries, types of business loans, collateral, credit score guidelines, and many more variables that make each bank unique.
Unlike the gas station that shows a price on a given day, banks do not, which is why it becomes difficult for business owners to identify the right bank.
Lack of information
Business owners don’t provide all relevant information upfront which leads to a jigsaw puzzle kind of situation at the bank. There is usually a lack of connection between the business’s past, present and future, its financials, business model, management or individual, which ultimately results in the bank’s taking excessive time to gather information. The more information that is provided up front, the easier it is for the bank to understand the project, resulting in faster decisions to get the intended result of the loan application.
At times, some unforeseen expenses need to be provisioned in the business loan project. At times when provisions are not caught earlier in the process, they can lead to uncomfortable dilemmas for all parties resulting in delays in approvals, or even loan declines.
EZ Funding Solutions LLC are a certified Business Loan Advisory and Project Finance Consultant Firm that has developed a unique solution to the Small Business Administration (SBA) lending platform that gathers all relevant and precise data up front. They do SBA eligibility tests, risk analysis, feasibility analysis, mitigation, project presentations, underwriting and loan-closing due diligence, all under one platform in order to increase accountability, loan approvals and loan closings.
For details on us please go to www.ezfundingsolutions.com or call 908-922- 5527.
EZ Funding Solutions LLC: Create – Qualify – Underwrite – Close; Simplify Business Financing
- Proud to be chosen as one of 150 businesses selected nationally to attend the Small Business Majority Summit at the White House in May 2016.
- Advisory Board member at NJ SBDC (Small Business Development Center) in Middlesex * County
- Advisory Board member at RBAC (Regional Business Assistance Corp), NJ’s largest CDC (SBA 504 Lender)
- Advisory Board member at IT-Connect (http://it-connect-expo.com/our-team/our-advisors)
- Counselor at SBDC at Rutgers University helping businesses get access to capital(go to http://business.rutgers.edu/njsbdcnb for details on all our seminars
- Ambassador Committee Member at Middlesex County Regional Chamber of Commerce
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