Financing Your Growing Business
Thinking about a loan? Whether it’s the first time or the twentieth, asking for money is enough to give most business owners nightmares. But it doesn’t have to be that way. Here are some tips for making the loan process easier.
Know exactly what you want the money for
If you’re buying new machinery or equipment or building a warehouse, this is rather easy to describe. However, what many people forget are the additional operating costs associated with the purchase—such as payroll costs for new employees to run equipment and additional overhead. These costs can add up quickly and if you don’t anticipate them, you may find yourself short of cash.
Similarly, some people plan a big sales push without taking into account the need for more customer service staff, inventory or a higher level of receivables. It is important that you clearly define your plans and consider everything you will need to accomplish them before you seek a loan.
Know how much money you need
Once you’ve determined your business needs, it’s time to put a price tag on them. Manufacturers or distributors can provide prices of equipment. If there will be construction, contractors can give you fairly accurate bids (and contracts can be written to avoid costly overruns).
When you look at working capital expenditures like maintenance, labor, inventory purchases and the like, it starts to get trickier. For this you will need to prepare projected cash flows. While this can be tedious, it is the best way to estimate accurately. Alternatively, there are quicker ways to approach this such as a simple rule of thumb—for example, add 25% to purchase price—but these are not as accurate as good projections. And, a good cash flow forecast will force you to think about the impact of your plans on every aspect of the business.
Know when you will need the money
It is important to know the timing of your financial needs. Suppose, for example, you are going to construct a building addition and your total borrowing needs are $150,000, of which $100,000 is for the construction and $50,000 for working capital. If it will take six months to build the addition, there is no reason to borrow the full amount now. You can and should, however, obtain the loan approval now since it is foolish to embark on a project without knowing where the money is coming from.
Arrange for the loan to be paid out to you as you need it. You will save on interest costs and demonstrate to the lender that you really know what you are doing.
Don’t wait until the last minute
A common error is to leave financing needs until the last moment, the point at which access to cash becomes so pressing that any delay can seriously damage the business. Waiting until the last moment can be seen as a sign of poor planning.
Arranging loans can take weeks or even months. This is especially true if your company has never borrowed before, if the new project is large or if it is different in some way from what you’ve done in the past.
Get the ball rolling early. Indeed, the very best strategy is to inform your Cole Taylor banker before needs are finalized. Fill your banker in on what your business does and how things are going. Invite him or her to visit your facilities. By getting a good understanding of your business, we can provide solid financial advice. When you do need to borrow, the process will go more quickly and more smoothly.
Visit the Cole Taylor Web site at www.coletaylor.com to learn about our financing services for businesses with under $10 million in annual sales and for businesses with more than $10 million in annual sales. You also can call us at (847) 653-7474 for more information.
It is important that you clearly define your plans and consider everything you will need to accomplish them before you seek a loan.
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www.coletaylor.com