Clearing the Hurdles of Business Lending
By Michael K. Menerey
Throughout the Inland Empire, business owners are struggling to obtain credit. Regulations like Dodd-Frank have made it difficult for banks to relax their underwriting criteria; even community and regional banks are beholden to a firm set of government-imposed rules. Furthermore, uncertainty about the economy remains despite its slow climb to recovery. These factors make it extremely difficult to obtain the cash flow needed in order to inject growth into a small to medium-sized business.
When Credit Dries Up
When businesses lack available credit, the result is a domino effect that ripples through the economy of an entire region. A few of the negative consequences include:
- Postponed capital expenditures, which leads to loss of revenue
- Unfortunate delays for growth and expansion
- Missed opportunities to introduce new products and services
- Inability to take advantage of seasonal promotion opportunities
In other words, the entire business community becomes stagnant when credit dries up. There are also consequences for the general public: hiring delays, lower incomes for workers and a weaker tax base for the area. The local economy essentially shuts down, and all because businesses are unable to secure credit.
How We Can Fix It
The best way to remedy this dismal scenario is to improve lending conditions for small to medium sized businesses in an area. To do this requires leadership – the leadership of local business owners. As a business leader here in the IE, you can start getting skilled in the areas of cash flow, expense control, tax planning and maximizing profits while you encourage your colleagues do the same. That kind of effort may create a positive domino effect of its own.
Next, it’s important to demonstrate competency to creditors. When applying for your next loan, be sure to show your lender that you:
- Observe internal control when it comes to distributions and dividends
- Have a forecast plan that details when and how the loan will be repaid
- Have guarantees in place, including all personal and business credit scores
Also, remember: You aren’t obligated to go to the same bank every time you need a business loan. In fact, it might be time to find a non-traditional lender instead. There are many options in the world of finance, and by considering all of them, you are increasing your odds of having a loan approved. It’s time-intensive, but worth it once the capital comes in.
As another option, some small to medium sized business owners choose to outsource the position of CFO. An outsourced CFO is someone who is dedicated to performing the duties of chief financial operator without a long-term employment commitment. There are numerous advantages to outsourcing CFO services, including greater expense control, maximized profits and simplifying the minutiae of applying for a loan for capital expenditures. It’s just one more way businesses can improve their processes and shorten the waiting period before their next loan approval.
Michael K. Menerey is a partner at CFO Edge and a Southern California executive with over 40 years of experience in financial management, operational and investment oversight