Two Major Considerations prior to Approaching Financial Sources

Two Steps & A Plan

So you want to approach a lender to obtain a small business

loan or procure commercial real estate debt?  One of most important small

business functions to be well practiced in during any climate, and most

definitely in this current problematic lending environment, is the "two

step."  Take two steps back and first consider the expectations you

have written into your business plan and or finance request.  Secondly,

engage yourself in strategically developing your contingency plan, your

"Plan B.”

Now, let’s discuss expectations. Managing expectations

correctly not only saves time but also displays professionalism. After you have

knowledge of the dollar amount you will be requesting from the lender, double

check to make sure the numbers line up and don't over exceed the lenders loan

to value ratio, debt service coverage ratio or any other financial

guidelines.  If they do, make a note to justify why the lender should lend

outside the box and plan on overcoming a negative response from the lender.

Nothing wrong with being a zealot, but remember to always plan for the worst by

ramping up a contingency plan.

Your contingency plan will also help you exude more

confidence in your current business plan, your “Plan A,” simply based on the

fact that you have been as forthcoming as possible with yourself and your current

lender, (which goes a long way in building solid businesses relationships). 

This process allows you to uncover any and hopefully all unfortunate surprises

and mishaps and most importantly, gives the reassurance that there is a

backup plan already in place that you can proceed to with ease and confidence.  

Of course, your backup plan should consider the multiple levels of reduction in

the funding request.  Remember to ask the hard questions; "if these

reduction levels were to take place, what affect would this have on business

operations?"  "What will be the outcome of business operations

at that new proposed level?"  Business owners and commercial real

estate property owners should be realistic and look for levels of reductions from

banking or commercial lending sources in regards to their finance

request.  The next step is to consider timing.

Many business owners and commercial real estate property

owners have grown attached to the previous era of quick funding, limited

documentation, little underwriting scrutiny, low interest rates, and low credit

requirements.  Many have drawn the unrealistic conclusion that current

funding is dependent of their previous funding success or their relationship

with their banker. This type of thinking, while certainly optimistic, can lead

to shipwrecks in your future business growth by keeping you blinded to your

lending options.  If you don't give enough serious thought to all tangible

available means and the options you could be provided, you run the risk of

trying to navigate around serious financial situations after the situation has

grown dire.

So there you have it.  Considering a contingency plan

may not only ensure that you secure the funding for your business or commercial

real estate venture if things happen to have fallen apart with “Plan A,” but

the mere thinking processes that a business owner engages in to consider a

contingency "Plan B," can lead to and open up unexplored ideas of

opportunities. More on that in Part Two...