The Cash Flow Blog

While  access to commercial loans is difficult, an alternative to consider in your search for capital is an angel investor.  And while angel investors are non institutionalized, they’re far from unsophisticated.  In fact, some angels are more sticklers for detail than their VC cousins — after all, it’s their money.

Fobes.com offers Ten Ways to Attract Angel Funding.  I’d like to highlight #8 for you:  Finalize Your Financial Model.   In fact, I’d really like to highlight one aspect of your financial model — revenue forecast.

Here’s the deal

You should know everything about your first year projection.  I mean everything.  If you can’t answer these questions, the odds of hitting your number are slim.  And if you can’t hit the first number, how are we to believe you’ll hit the second, third or fourth number in your plan?

We won’t.  That’s the rub.

If you're new here, please subscribe to this site. It's the best way to make sure you don't miss any new tips or ideas to maximize your business.

Thanks for visiting!

On the heals of yesterday’s post on limited commercial lending, here’s a Reuters article that adds further frustration to the topic.  According to the article, stimulus money intended for small business isn’t reaching potential buyers because the lenders don’t want to take it — the strings attached aren’t considered good business for the banks.

The problem?  Paperwork and potential restrictions from the government on dividends and payroll of the banks making loans.  That and some banks are concerned of a potential stigma of being known as an institution that took stimulus money.

The middle-man in the deal doesn’t like the deal.  And that may mean businesses who can benefit from a loan — if not have a necessity for one to survive — may not get one.

Bankers said they are hesitant to take capital injections from the government because of the stigma and the potential restrictions on dividends and compensation…The bankers said the SBA loan program has promise but involves a lot of paperwork and takes a long time to process the loans.

Here’s the rub

As shared in yesterday’s post, banks are cranking out new credit card programs left and right to bridge the gap in lending.

So, what’s a business to do?  When it comes to access to commercial lending, it appears small businesses are facing the reality of damned if you do, damned if you don’t — taking credit where you can get it or throw-in the towel.  Even if it means taking money with up to 30% interest.

What do you think about all of this?

According to this CNNMoney.com article, small business lending has all but dried-up and gone away.  Replacing it is good ole’ credit cards — with up to 30% interest on repayment.

Here’s the money quote (no puns intended):

Brooks applied for two business loans with Chase, first in 2007 and then again in 2008. Both applications were denied. While he had always had credit cards, Brooks never had to depend on them before: “We just never really used them — they were just there.” But toward the end of 2008, Brooks started paying bills and suppliers with his cards.

Now, he’s hit the limits on nearly a dozen cards. Brooks isn’t sure where to turn to next to keep his business running.

Criminal.

If a business can’t get a loan, why is it so easy to credit cards instead?   We know the answer, but it doesn’t change the question.

Regarding the quote above, maybe Brooks’ business shouldn’t continue operations.  Maybe the crime is credit cards somehow allowed it to exist beyond it’s time.  The weak should die?

But it’s hard to tell.  We don’t know enough to have a good opinion on the operations of Brooks’ business.  Judgment on his business isn’t the point I want to raise.

The point of the CNNMoney.com article that caught my attention is banks cutting their volume of small business loans, while increasing their credit card programs to small businesses.  Small businesses are being forced to increase their use of credit cards because that’s increasingly the only form of credit they can access.  That’s the criminal part.

A rhetorical question:  With stimulus and bail-out money being thrown around everywhere, why isn’t it funneling through  banks to small businesses in the form of small business loans?

It’s a mind-numbing and highly frustrating formula:  Limit small business loans by increasing lending requirements in an effort to reduce the portfolio of risky loans, then increase access to credit cards to fund small business,  while increasing credit card rates to protect the issuer from losses due to maxed out cards and rising rates of default.

This is insane.

Agree or disagree?

Credit is tight.

Small businesses – large ones too – are learning quickly lines of credit can shorten overnight.  And without notice.

This article from WashingtonPost.com – Tight Credit Squeezing Small Businesses – has a lot in it for small businesses to learn and be aware of.   The point of the article is a level of relief is on the way for businesses in need of credit – lenders participating in SBA programs will soon have more latitude to make money available to more businesses.  That’s good news.

But there are other things in the article that led me to share it with you – the story of a business owner who learned overnight his credit lines were reduced from $56,000 to $1,000.  Ouch!  Credit line reductions can have a devastating affect on a business – reduced capability to purchase raw materials and inventory, inability to meet payroll, etc.

What stood out in the story is a reminder credit reductions happen without notice.  And the only reason the business owner in the story learned about the reduction when it happened is because he subscribed to a credit monitoring service.

Another thing that stood out is the closing paragraph – character still counts.

“The reason we made the loan was character, although of course we closely look at credit and other things as well,” said Vickers, who was impressed with Fochler’s ability to increase sales yearly and his accuracy in reporting his taxes. “His knowledge of the industry and his passion and dedication made it clear to me that he has a strong shot at succeeding.

“He’s the perfect client.”

Give the article a read.  There’s good insight to how lending institutions are operating in today’s market and good information on changes with SBA loans beginning February 2009.