Tuesday, March 31, 2009

Still Need Money?

Depending on the type of business you are in and depending on what you have for collateral and depending on how good your credit is, there may be other choices besides the bank. Also, if you want an unsecured (signature only, no collateral) loan, that is also available but probably not from your bank. If you think your bank's interest is high, just wait until you see how much an unsecured loan or line of credit is. Let's pursue that a little.

1. If you have a long standing banking relationship and have always paid as agreed or in advance of the terms and never bounce a check, I would ask the bank for a signature only loan especially if the all you need is a relativelsmall amount of money. The same is true with a line of credit. You probably already know this, but an "bank line", as it is referred to, is a loan that you use as you need it. Let's say you have a $100,000 bank line and you are buyig something for $25,000. When you spend the $25,000 you have $75,000 left on your line of credit. Typically, you just call the bank when you need some of the money and they deposit it in your account.

2. Another type of credit line is associated with your credit card or a credit company associated with a bank like Wells Fargo Credit, Barclays Credit, CitiGroup Credit, etc. Sometimes they have names like Barclays Business Credit or BankAmerica Business Credit. Usually these are unsecured loans for a very credit worthy company and it is expensive. However, some of these credit companies take a larger risk than your bank might entertain, but it will cost you.American Express has a business line of credit. I talked to them for a client who had an AmEx credit card for his business and they gave him a $10,000 line in a couple of days unsecured. He had a pretty good credit history and, like most AmEx card holders until lately, was seldom late. My client only needed about half of that to make sure he had payroll covered from time to time and it worked find for him. AmEx charged a $99 annual fee and the interest began the moment you wrote a check on the line. AmEx provided the checks and made it very convenient. It was not cheap!

3. If you have your own personal resources, you should consider borrowing from yourself. BUT, you should set it up just like any other loan with a Promissory Note and regular payment terms. Obviously, if it gets difficult to make the payments, you won't get mad at the company if they are late and your can write the note so that late payments may be allowed periodically. Also, if times get tough and you need to not pay yourself, pay your employees first and if you have money left, make a payment to yourself on the loan. Becareful to document the loan from you to your company because if it is undocumented the IRS will consider it a sham. Also, if the company goes under or is bought out at a loss, undocumented loans are very difficult to write off especially if you have never made a payment.

Friday, March 27, 2009

Do you need money?

If you are a small or family owned business looking for short term borrowing for inventory, a capital purchase, cover payroll, buy a computer (or several computers), a vehicle or even a line of credit, be of good cheer. Money is here! Really. Let me give you some suggestions.
1. If you truly need it short term, your bank's rates should be the lowest right now. Many banks are not, really, lenders for long term items. However, if you are just wanting to borrow because your A/R is not yet due or slow or you want to meet payroll and anticipate other cash needs simultaneous to payroll needs, then go to your bank. Especially, if you have a long term relationship with them. Make sure you tell your banker in advance you might need the money and make sure your financials are up to date if he might need them. If you have a strained relationship with your bank, it is important to let them know you might need money and ask them to let you know if they will do it or not. If they will not, try credit companies like GE Credit, ITT Credit, Barclay's Credit or even the SBA in combination with your bank.
2. If you do not have a banker or bank, get one now. Get someone to recommend a bank or go to one where you have personally banked for a long time. When you approach them, just have a meeting where you talk about your business, what you need to borrow and why and when. If they will generally consider doing the loan, ask them what they will need. Probably, current business and personal financial statements, 2 years tax returns and, if you are going to use A/R or Inventory as collateral, they will need your A/R Aging Report and your Inventory Stock Status Report or your Fixed Asset Inventory Report. Remember, if your A/R shows huge amounts of customers over 60 days (unless you have government contracts to back them up), your lender will likely only loan based on current balances so figure in your loan needs what you will need beyond just what you need now and attempt to get an open credit line for the difference.
3. I have had several clients and know several people who feel that it is none of the banks business about their personal information or tax returns. Too bad! You are the one wanting to borrow the money. If you are a very strong company, have no debt and enough Receivables to cover the loan, oh let's say, 5 to 1, then maybe you won't have to do it. That is a big maybe because banks must have all the information to meet the criteria for bank examiners and keep their FDIC insurance in tact. Usually your personal guarantee is "additional" collateral. The bank will use whatever assets you wish to pledge first and then use your personal statement to shore up the deal in case of a default.
4. If the assets you want to pledge are "free and clear", then you MIGHT have an argument for not personally guaranteeing. However, the bank should request and receive from you your personal statement so that they can see how you have valued your interest in the company and does it appear that you might be using some of the borrowed money personally. If you have no previous relationship with the bank, they will want more than that. Remember, they do know you from Adam, so be transparent. (Not like the governments transparency which is really defined as you be transparent we will be secretive.) Also remember, if you have had your checking account and even savings at the bank for years and even if you have pretty substantial balances, that does not mean as much as it used to. Also, if you run a lot of checks and deposits through the bank, that does not mean what it used to. Banks, if they are new to your, will want your accounts, but they are not going to loan you money just because you do a lot of demand deposit account business alone with them. That is why, you should build a relationship with the bank and a specific banker far in advance of needing money.

In my experience, banks are NOT always the best choice. Over the next couple of days, I will discuss some others. It has been said that your bank is a good lender if you do not need the money. They brag about being "Business" lenders and in truth they are just not really good business people they are just good paper pushers because all banks have their own criteria for making loans and bankers have little or no flexibility in their lending. HOWEVER, if you have a relationship with the bank, you are much more likely to get them to consider something that is creative PROVIDED your banker has any guts. Most of the bankers I have known do not have a creative bone in their body, but a good one will listen to what you propose, get all his paperwork together and, at least, present it to the loan committee for action. If the loan is small enough (like a vehicle or a copier) he may have credit authority within those limits without going to committee. MAYBE.

That is my experience. More on other lenders is coming. What do you think?

Tuesday, March 24, 2009

My Gosh! Banner Bank in Oregaon

Small business people! May I have your attention, please! A bank is being creative! Really!



A bank in Oregon called Banner Bank received $134 Million in stimulus dollars. And guess what. They did the right thing (Attention Mike Huckabee) and put the money to work generating jobs and providing for the future. They took $50 Million and set it aside, so to speak, to provide loans to home buyers at a rate of 3.875%. They expected 10-12 calls when the program was annouced. They received 60 calls and it is growing. In this town there was a glut of expensive, new homes. They are selling and the developers have put people back to work to build more or finish what was started. The people buying are buying appliances and putting in landscaping and the people supplying those things are buying inventory and re-hiring people laid off. Amazing!



Is that how the stimulus is supposed to work? What do you think?

Monday, March 16, 2009

In this economy have you........

Although I think that all the "crisis" and "fear" is overrated and blown out of proportion by the media and the politicians, these times still call for being prepared. So, I ask:
1. Have you written a Strategic Plan or reasonable facsimile thereof?
2. Have you saved money for a rainy day like our state's Rainy Day Fund?
3. Have you evaluated your margins? Pricing?
4. Are you overstaffed?
5. How are your customers? Are they in trouble too? If so, should they pay up front? Or, if you only have a few customers, can you work with them on such things as payment terms and buying cycles?
6. What would you do if you lost your major customer/client?
7. What employees are expendable/absolutely necessary? Can you keep them all employed by reducing hours/pay? Most employees would rather keep their jobs/benefits than be unemployed and without anything.
8. Do you want to sell out? Probably not a good time to do so unless your business is booming.
9. How are your facilities. Time to shrink? Time to enlarge? Stay where you are?
10. How many relatives are dependant upon you for their livelihood? Can you run your business with just relatives if you had to?

Now, absolutely do the following:
1. Aggressively sell.
2. Be positive and upbeat.
3. Be practical and pragmatic.
4. Don't quit until the fat lady sings.
5. Quit while you are ahead.
6. Pick either number 4 or 5 and plan accordingly.
7. Remember what got you into this business. Is it still a worthy effort?
8. Be frugal where and when you need to be. Possibly in all aspects of the business.
9. Pray for wisdon.
10. Tell your wife/husband and kids that you love them no matter what!

What do you think?

Friday, March 6, 2009

What is the point?

Discussing the book The Peter Principle may seem odd. But for family owned and small business it is very important to realize that big company fiasco's can attack your business too. You are not immune. As a matter of fact, you are vulnerable. Many small and family owned business owners think that they are immune to big business problems and it is quite the opposite.

Take, for example, health insurance. Because of the smaller size of your group, you might be paying higher rates but health insurance as a benefit is so important to your employees these days. At my current consulting arrangement (they have 5 employees and sales of about $500,000), the primary and most important benefit is health insurance. The employees here are all family and they are all desperately in need of this benefit and are willing to pass up other things like vacation pay, some holiday pay and raises to make sure they keep the health insurance.

You might think that is not a problem for big businesses. Well, look at General Motors. One of the things that has them in trouble is $98 Billion in unfunded retirement plans and $43 Billion in health care costs for retirees and others. It may be what puts them in bankruptcy. That number is mind boggling. It is one of those things that their management should have been thinking about a long time ago. Instead, times were good, cars were selling and credit was easy. Not now!!! Sure they cut many jobs and closed plants. It was too little, too late. Just wait until they go into bankruptcy and all current contracts are now open for discussion. Guess what will be most important to the unions and the rest of the employees. Cut their pay, reduce their hours, don't contribute to their 401(k) BUT do not get rid of our health insurance. Just watch and see.

The Peter Principle endeavors to get all businesses to understand that they must be sharp. Constantly watching their customers, their market and their employees needs and be ready at a moments notice to change gears. Quit spending so much time worrying about who has what title and concentrate on your planning, strategic planning, and running a lean, mean, fighting machine.

What do you think?