Lender Financing: It’s a Balancing Act
It has been Quirk's experience that unrealistic expectations can also lead to rejection. She recommends patience, both on paper with projections and in person being interviewed by the lender.
Power of Projections
"For example, if you are planning to terminate personnel, have you built into your projections the time it will take to truly roll-off out of the company—i.e., benefits, vacation time earned, etc.?" she notes. "If you are moving or need to rearrange your shop to bring in another company, a piece of equipment or downsize the operations, have you built in the downtime on the existing operation? I have seen the mistakes and omissions from companies who throw projections together too quickly, cry that it is impossible to project what is going to happen for the year, or state that projections are meaningless."
Companies that work from projections, and that compare their monthly performance to those projections, usually are much more successful than those who don't, according to Quirk.
"Management needs to spend time on the financials...what they are saying and the impact on the company in order to successfully manage through tough times. The more on top of it they are, the better they can weather tough times."
Cash flow lending has received some negative press, but Quirk says that it is the "weakened cash flow positions of the borrowers that has put a damper on lending." She says a riskier lender (which excludes most, if not all, banks) may not seek as much on the collateral side, but it will result in higher rates and fees, and/or additional guarantees. As the balance sheet and income statement go, so go the risk and the rates.
Simply put, if a company has been overspending the past few years, such as taking large salaries or distributions out of the company, they don't have the wherewithal to weather the tough times, she contends. "Banks set covenants to help a borrower keep its balance sheet and income statement in line. It is not to restrict a company, but to help it keep a proper balance."