Commercial funding is crucial for any business, big or small. In these times of global recession it is especially important for business owners to be cautious about the way they approach lenders and/or investors for commercial funding. While it’s easy to find articles and posts on how to be successful in this, it’s even more valuable to learn a lesson or two from the mistakes of others. Take the fiasco the Big 3 automakers, Chrysler, GM and Ford, found themselves in recently. There are quite a few lessons here on how you can easily ruin your chances of being taken seriously by investors and lenders. So, without further ado, here are the first 3 reasons why businesses are denied commercial funding and how you can avoid making the same foolish mistakes.
1. “I am up to my neck in debt . . . and I need more.”
Since 2006 Ford had been mortgaging virtually everything it owned in order to raise capital. From its buildings and equipment to its very logo. As of April of this year Ford had amassed debt to the tune of $25.8 billion. Standard & Poor saw fit to downgrade Ford’s corporate credit rating to CC in March. The worst part? They still needed more. Ford’s financial straits had forced it to join GM and Chrysler in their multiple trips to Congress . . . to plead for billions more.
A word to the wise. If your business is hooked on credit no lender/ investor will trust you with their money. Why? Because it’s unsustainable. A strong business is profitable enough to generate the capital it needs for its general operations. If we can learn anything from the fall of the Big 3 it’s that any business that relies so heavily on credit will soon see their expenses out-pace their income and they’ll no longer have a business to run.
No lender or investor wants to sink their money into a business with no future. Before you begin approaching them for commercial funding take a hard look at your company’s debt. If it’s out of control, do everything you need to reign it in. In the end it boils down to whether or not you need an investor’s money to grow and flourish or for life-support.
2. "We need the money . . . to fill up the Lamborghinni"
While Ford was closing down plants across the country its fleet of private jets, oddly enough, continued to operate. In fact, Ford’s CEO, Alan Mulally, along with the CEOs of GM and Chrysler thought it necessary to splurge on their flight to Washington where they would plead before Congress for taxpayer money they ‘desperately needed’ to keep their companies from going under.
How much did they spend on the trip you ask? About $20,000 . . . each. Apparently, maintaining their extravagant corporate lifestyles was more important than saving their companies. It’s no wonder institutional and private lenders turned their backs on them.
The lesson? If you show up for a meeting with potential lenders or investors in a $5,000 Armani suit, Dolce Gabbana sun glasses and a $50,000 car, you can kiss your funding goodbye. While being flamboyant it is quite all right if you’re going to the Oscars, when you’re meeting with potential lenders or investors it’s time for a more low-key approach.
This meeting is your opportunity to show your potential financial partner why investing in you and your business is a smart choice. Being gaudy will only show them that your priorities are out of sync with theirs. Their looking for sound business models with strong profit potentials, not divas.
3. “Massaging the numbers.”
While this seems to be all the rage with corporations today, using fuzzy math to misrepresent, exaggerate, or otherwise “tweak” your numbers is fraud. Trying to pull the wool over the eyes of a potential lender or investor is pure folly because they always find out when they’re performing their due diligence on you and your company.
If you’re caught, not only will they not invest in your business, they may also press criminal charges against you. Really not worth it. Save yourself the headache and expense (lender’s don’t perform due diligence for free) and do it the right way. Be conservative, be transparent, but most of all, be honest.
That covers today’s half. Heed these warnings well and you’ll be one step closer to getting the funding you need! Be back here in 2 weeks where we’ll finish up this list. Looking forward to your comments. See you then!
After more than 10 years within the construction industry, Joseph Polanco came to understand the intimate relationship that exists between real estate development and financing. As he embraced residential financing, he became involved with sophisticated commercial transactions. However, the more time he spent working on these types of projects the more he felt his clients’ frustrations with the entire funding process. This became the driving force behind Lauton Funding’s focus and singular goal: to ensure that clients enjoy a seamless and gratifying experience. Recognizing how vital it is that the free flow of information between principals and non-traditional capital sources be maintained, Lauton Funding continues to serve as a dynamic nexus throughout the entire funding process.
Joseph is very passionate about his role and implements it throughout; from the first introductory call with a prospect to the successful culmination of the deal. His position within Lauton Funding has allowed him to interact with those seeking funds for a myriad of ventures such as major development projects, residential sub-divisions, medical research, green energy or economic developments in third world countries.
With the realities of our current economic situation, Joseph observes that our way of doing business has fundamentally and irrevocably changed. The conventional business model will always exist; however, those who work with non-traditional firms will capitalize on solutions that would not have been available to them otherwise. In essence, for those in need of funding, there will be more viable capital resources at their disposal from non-traditional entities while the more familiar brick and mortar services continue to struggle to meet their needs.