The business borrowing process looks like an Olympic bar bell. One end is heavily weighted with borrowing preparation and the other end with servicing the loan after closing. Lift these correctly and you will have a successful borrowing experience. Lift them the wrong way and you could be in for some borrowing pain during the loan term.
Develop a Solid Capital Plan
Capital planning must be firmly grounded in reality. What is the purpose for borrowing? Will the new debt give you positive leverage? Will existing cash flow cover the new debt service? These questions must be answered in a thorough capital planning process before the first conversation with any lender happens. For existing businesses the historical financial statements and the annual budget form the basis for the debt coverage calculations. Check your industry leverage and debt coverage ratios if possible. U.S. publicly traded companies are required to file financial reports with the Securities and Exchange Commission. You can get some idea of where your business financing condition stands relative to these large companies. They may disclose the interest rate and other terms for new loans which can give an idea of the lending market for your industry.
This is just one of the ways you can get your business into top borrowing condition. Leverage can be a powerful business tool if used smartly and with a sound purpose. The durability of your business depends on getting the borrowing process right.
- Chinese Cities’ Risky Borrowing Binge (businessweek.com)
- What Do You Need to Know About Loan Modification? (thinkup.waldenu.edu)
- Small Business Borrowing Held Back In July By Debt Ceiling Crisis (huffingtonpost.com)
- Why do you need to borrow money? (clarkting.wordpress.com)
- Reluctant Lenders (soniagrunberg.wordpress.com)