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The Truth About Business financing

Written by: Rick McCoo

Article Overview: Many businesses would benefit from a suite of specific commercial non-bank finance products, each of which performs a different and essential financing function yet work together harmoniously. Frequently, businesses end up with an unplanned hodge-podge of different financing products for different purposes, but the different products work against each other. This is wasteful of time and opportunity.

The Truth About Business financing

The main source of funds that banks lend to businesses is depositors’ money.
A bank, using the neighbors’ grocery money, is financing that business down the street. Among the things that are for certain, is that the bank had better not loose the neighbors’ grocery money, or the bank will never hear the end of it. Thus, banks and bankers are extra careful when lending to businesses.

Business owners expect banks to "Be there for me"! "Be there for me" is not even on the bank's list of priorities for business owners. Protecting the neighbour's grocery money is at the top of the list of priorities, as is complying with legal requirements of tens of different federal and state/provincial regulatory agencies, and turning a profit for shareholders.

A bank can advance on small inventory were there is no accounts receivable to go with it. This would include businesses that sell to consumers, and would include beauty salon, or a convenience store, or a pizza place, or a neighborhood market, or a liquor store, a fish market. The reason is that you will usually find that the bank will take as its collateral a GSA on all business and personal assets, and those assets will usually include real estate equity in first or second position.

Interesting. In other words, the loan may appear to be against inventory but it is really against real estate equity? Why not just refinance the real estate and put the money into the company? There are several logistical reasons for this, but a major credit reason is that it is much better to have the financing in the name of the enterprise even though the real collateral is personally-owned real estate. This enables the business to build up a commercial credit history, which is absolutely essential to the further development of the business.

Many small and medium size businesses could do far more in terms of developing economic opportunity if only they would reduce their dependency on banks as their primary source of business financing. Other aspects being equal, businesses can develop more and faster and can be in far healthier financial condition while doing it, if enterprise owners would learn to choose and use proper non-bank business financing products to finance their businesses. Non-bank commercial finance companies do things that banks cannot do, simply because it’s inappropriate for banks to do those things.

Non-bank financing products do things that bank loans cannot do. Non-bank is a term for a funder that is not a bank, that is, not a depository institution.

Just as it’s not a bank, it’s not a commercial credit union or a trust company either. It’s any of a number of private commercial finance companies, each selling and servicing specific commercial financing products.

Private commercial finance companies differ from banks in that they:
Take reasonable calculated business risks, as long as the risk makes sense to them.
· Generally speaking, advance more on commercial assets than do banks.
· Impose fewer restrictions (covenants) on managements than do banks (within reasonable boundaries), giving ownerships greater freedom in what they do with financing and in how they operate the company.
· Give ownerships and management a far greater range of financing products, thereby providing ownerships with more tools for managing balance sheet debt of a growing company.
· Provide greater security from having their financing called early.
· Enable ownerships to have more than one financer, so that the failure of any one financer will not trigger a financing crisis.
· Enable company ownerships to take advantage of more of the opportunity that the market place offers. This makes it possible for ownerships to grow their companies more and faster than they could with bank financing.

Does this mean that private commercial finance companies will let their finance clients go wild? That is from the reality. Rather, commercial finance companies will enable companies to go considerably farther in their development than will banks.

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Related Forum Posts
Re: SEEKING PRIVATE OR ANGEL INVESTOR - Definitely have a thorough and accurate business plan. In the US, you can get help at SCORE - their website is full of great information and you can check for local chapters. If you would like a book that has all kinds of great information about financing options - this one is very good --- HOW TO GET THE FINANCING FOR YOUR NEW SMALL BUSINESS: INNOVATIVE SOLUTIONS FROM THE EXPERTS WHO DO IT EVERY DAY—WITH CD-ROM This new book will provide you with a road map to securing the financing. The book goes into traditional financing methods and assists the reader in setting up proper financial statements and a proper business plan. It details the differences between debt and equity financing and how and why to use each. Valuation techniques are explained for determining what your business is truly worth. However, the book’s real strength is in explaining alternative and creative methods of financing, such as SBA financing, investor angels, IPOs, limited public offerings and venture capital. Essential resources for finding the detailed information you need are included throughout. Item # 9780910627559 $39.95 Shri
Acquiring Financing - Any suggestions from the members here about tips on how to get financing to start a business or additional financing for expansion etc? Shri
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Its About the Right Money Option - Having the right partners and financing are so important. Locking yourself into a deal with the wrong partners can easily drag you and the business down. Also, great points about finding financing and other partners who understand the goals you have for the business and can help you work toward those. I've been amazed over the years to find the ways to network and to help others. Your financing partner can not only bring money to the table, but connections, information and the background to take the business to the next level. And, since they have money involved, its in their interest to help you make the business a success. ChrisH
Re: Women and Financing - It's Difficult! - I found this paragraph of interest (in the article from Nana's link: [quote="Nana":3r7womqv]Other studies show that women operate more service and retail establishments than men, which might explain their difficulty in getting financing since financial institutions often consider these two sectors more risky. However, although women are generally less inclined than men to apply for financing, when they do, they are more likely to get it. According to a study by Industry Canada on SME financing in Canada, in 2000 majority female-owned SMEs obtained a loan approval rate of 82%, which is slightly higher than the approval rate for majority male-owned businesses (80%). This suggests that when they do apply for financing, businesswomen submit excellent applications. [/quote:3r7womqv] They say, "Women are more likely to get [financing]." But the difference is only 2 percentage points! Big deal! And, that was only for one year, 2000. I'd like to know what the 10-year average is. Numbers can be manipulated to mean anything you want them to mean...it all depends on what you want to show.


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