One of the biggest changes we have seen over the last couple months is the requirement of the buyer. to have direct experience in a related industry of which they are purchasing the business. The lenders today are no longer stretching their classification of related experience. If the buyer does not have direct experience as an owner, not as an employee or manager, the lenders are not interested in financing their new acquisition.
The only area where a direct employment experience is transferring is within the retail sales industries. For example, where an owner of a hardware store now wants to buy a sporting goods store without any direct experience in the sporting goods industry, the lenders most likely would see this as a transferable experience.
Experience is becoming a very crucial area that needs to be satisfied before a lender will approve new SBA financing. As business brokers, you should be very aware of the previous experience that your buyer has, and try to ensure that there is a direct transferable experience. One way of getting around this strict requirement is for your buyer to partner up with someone who has direct experience. The only problem with this suggestion is that that individual with experience would have to become a guarantor on the loan, as well as the individual without the experience. Visit our SBA based website for more information.
Monday, July 28, 2008
Daily Observation - SBA Changes; Experience
Sunday, July 27, 2008
Daily Observations - SBA; SOP Changes
For the next series of Daily Observations I will be highlighting the new SBA changes that are supposed to be effective August 1, with the new Standard Operating Procedure Manual (SOP)
The content of this article comes directly from the talk that I just did to the California Association of Business Brokers. The talk was organized around the concept of Now More than Ever.
Now More Than Ever we need to keep everything very simple as mentioned in our last talk, but we need to be more knowledgeable than ever before. The knowledge of what lenders are still in the games, the knowledge of what lenders like what niches, the knowledge of how a lender interprets a business plan and a cash flow model.
Because of the significance and the importance of the business plan we have created a 25 page business plan template that we are consistently using with our clients. The clients hat have used this plan are in much better control when the underwriters call to question them about their new business.
Email us at Mteam@loanforbiz.com with your contact information and we will be delighted to send one out to you immediately.
Tomorrow night we start off with the letter "E" for experience.
The content of this article comes directly from the talk that I just did to the California Association of Business Brokers. The talk was organized around the concept of Now More than Ever.
Now More Than Ever we need to keep everything very simple as mentioned in our last talk, but we need to be more knowledgeable than ever before. The knowledge of what lenders are still in the games, the knowledge of what lenders like what niches, the knowledge of how a lender interprets a business plan and a cash flow model.
Because of the significance and the importance of the business plan we have created a 25 page business plan template that we are consistently using with our clients. The clients hat have used this plan are in much better control when the underwriters call to question them about their new business.
Email us at Mteam@loanforbiz.com with your contact information and we will be delighted to send one out to you immediately.
Tomorrow night we start off with the letter "E" for experience.
Thursday, July 24, 2008
Daily Observation – Keep It Simple Stupid
Well we’re back on-line again, after a brief stint in Las Vegas for an Economic Summit; I am ready once again to share with you the latest in the area of commercial Finance.
I hope the title of this observation has piqued your interest. I am not saying that anyone is stupid, but the system that we have to work within everyday is getting more and more ridiculous, as more and more lenders are closing their doors. The lenders that are remaining are asking for more and more minute details in their quest to find reasons not to fund a loan,
The lesson that I am trying to share and not sound so condescending is that we as financial experts have to provide all the material the lender needs in the most simplistic and elementary way that we can present data. As I mentioned last week, there are no more exceptions, and we have to cherish the lenders that are still making deals happen.
But instead of cherishing them get them the most complete and easily understood loan scenario possible. Don’t go presenting esoteric loan scenarios as they are just not going to fund. Don’t present SBA Loans that the taxes do not reflect the true income and hope that all the brokers add backs will meet the lenders criteria for funding.
We must be very proactive in this economic environment and not reactive.
Financial Broker and Business Development Officer must work together for the good of the client. For more on the Role of the Financial Broker visit our website.
I hope the title of this observation has piqued your interest. I am not saying that anyone is stupid, but the system that we have to work within everyday is getting more and more ridiculous, as more and more lenders are closing their doors. The lenders that are remaining are asking for more and more minute details in their quest to find reasons not to fund a loan,
The lesson that I am trying to share and not sound so condescending is that we as financial experts have to provide all the material the lender needs in the most simplistic and elementary way that we can present data. As I mentioned last week, there are no more exceptions, and we have to cherish the lenders that are still making deals happen.
But instead of cherishing them get them the most complete and easily understood loan scenario possible. Don’t go presenting esoteric loan scenarios as they are just not going to fund. Don’t present SBA Loans that the taxes do not reflect the true income and hope that all the brokers add backs will meet the lenders criteria for funding.
We must be very proactive in this economic environment and not reactive.
Financial Broker and Business Development Officer must work together for the good of the client. For more on the Role of the Financial Broker visit our website.
Thursday, July 17, 2008
Daily Observation - The Loan Package
An underwriter while viewing a loan package needs to get a true feel for the deal, they have certain questions and criterions that need to be met. Below are some of the important issues that are raised in the underwriters mind and the corresponding sections of the professionally prepared loan package.
A properly prepared package should answer the following inquiries by the review underwriter.
Does the business in question have a positive cash flow that is supported by historical documentation?
This is answered by including the appropriate financial statements and tax returns
Can the business support additional debt?
This is answered by taking a comprehensive look at the current as well as the future cash flows. Also it can be determined by the seller’s discretionary income at the end of the day.
Is the individual that is attempting to secure the loan qualified to run this business?
This is answered by the inclusion of his current resume, as well as any supporting documentation.
Does the prospective purchaser have marketing and business plan to demonstrate knowledge of the business as well as their plans for repayment and future growth?
What are the projected revenues for the new business?
What is the current financial situation of the borrower?
If a buyer of a business just walks into their local bank, and does not have an individual who knows and understands the process the loan will definitely take longer. But a professionally prepared package answers all the above questions that an underwriter needs to have handled and thus makes the time frame for approval and ultimately closing much faster.
A properly prepared package should answer the following inquiries by the review underwriter.
Does the business in question have a positive cash flow that is supported by historical documentation?
This is answered by including the appropriate financial statements and tax returns
Can the business support additional debt?
This is answered by taking a comprehensive look at the current as well as the future cash flows. Also it can be determined by the seller’s discretionary income at the end of the day.
Is the individual that is attempting to secure the loan qualified to run this business?
This is answered by the inclusion of his current resume, as well as any supporting documentation.
Does the prospective purchaser have marketing and business plan to demonstrate knowledge of the business as well as their plans for repayment and future growth?
What are the projected revenues for the new business?
What is the current financial situation of the borrower?
If a buyer of a business just walks into their local bank, and does not have an individual who knows and understands the process the loan will definitely take longer. But a professionally prepared package answers all the above questions that an underwriter needs to have handled and thus makes the time frame for approval and ultimately closing much faster.
Wednesday, July 16, 2008
Daily Observation - Executive Summary
“This is where you will take all the major points that you have now synthesized and put it in a couple of paragraphs to share your venture with your friends, family, investors, and staff. Many people will only read the executive summary and skim the rest of the report to get to the salient points of the plan.
Remember this plan is for you; it is one that evolves as your business evolves and grows. Don’t just write this report and never come back to it. It is crucial that you are constantly reviewing your executive summary, along with the entirety of the business plan.”
The above section is from our business template tool. The problem is that most people do not follow this procedure at all. Just today we received a business plan that we were anxiously awaiting and all we got was fluff, 25 pages of sheer fluff.
After reading the business plan we should not have to ask very basic questions, they should all be answered within the plan. The plan should be leaving the reader with wanting more and more information to be able to make an intelligent decision based on the relevant data in the plan. The plan should not leave you wanting to know the basics but the more advanced data, especially the relevant projections and cash flows.
So as the economy heats up and you are looking to define your business and yourself follow these guidelines for optimum results. Contact us at MTeam@loanforbiz.com for your free plan.
Remember this plan is for you; it is one that evolves as your business evolves and grows. Don’t just write this report and never come back to it. It is crucial that you are constantly reviewing your executive summary, along with the entirety of the business plan.”
The above section is from our business template tool. The problem is that most people do not follow this procedure at all. Just today we received a business plan that we were anxiously awaiting and all we got was fluff, 25 pages of sheer fluff.
After reading the business plan we should not have to ask very basic questions, they should all be answered within the plan. The plan should be leaving the reader with wanting more and more information to be able to make an intelligent decision based on the relevant data in the plan. The plan should not leave you wanting to know the basics but the more advanced data, especially the relevant projections and cash flows.
So as the economy heats up and you are looking to define your business and yourself follow these guidelines for optimum results. Contact us at MTeam@loanforbiz.com for your free plan.
Tuesday, July 15, 2008
Daily Observations - The Business Plan
Whenever you write a business plan the Executive Summary should be done last as it is comprised of a synthesis of all the other questions and answers. When you are finished writing your first draft, you will have a collection of small essays on the various topics of the business plan.
Then you will want to edit them into a smooth-flowing narrative. I cannot emphasize this enough. This has to be your work, not the work of someone else. Banks want to see what the new owner has in mind for his or her business. Banks are not interested in what a professional business coach, a SCORE representative or your CPA has written about how the business will function.
They want to see what the potential business owner has written. If you are not aware of what is in YOUR Business Plan, then you will not be able to talk intelligently when you are interviewed, which you inevitably will be, when you are seeking outside capital.
The real value of creating your own business plan is having the tools necessary to research and think about your new venture in a logical and methodical way. The act of planning helps you to think about the important elements of your business, to do additional research and study when needed, to look at your plans and ideas critically and to make those critical costly changes before they are implemented. For our 25 page business plan template e-mail me at mteam@loanforbiz.com.
Then you will want to edit them into a smooth-flowing narrative. I cannot emphasize this enough. This has to be your work, not the work of someone else. Banks want to see what the new owner has in mind for his or her business. Banks are not interested in what a professional business coach, a SCORE representative or your CPA has written about how the business will function.
They want to see what the potential business owner has written. If you are not aware of what is in YOUR Business Plan, then you will not be able to talk intelligently when you are interviewed, which you inevitably will be, when you are seeking outside capital.
The real value of creating your own business plan is having the tools necessary to research and think about your new venture in a logical and methodical way. The act of planning helps you to think about the important elements of your business, to do additional research and study when needed, to look at your plans and ideas critically and to make those critical costly changes before they are implemented. For our 25 page business plan template e-mail me at mteam@loanforbiz.com.
Monday, July 14, 2008
Daily Observation – You must know your numbers
Today more than ever you must be able to understand and correlate the numbers in your loan package. Lenders today want more specific data as to cash flow analysis, debt service coverage, and return on investment than ever before. If you are not able to tell a lender precisely how much that you can borrow, and how much you need to borrow, which may be two different things, the lenders may say no to your total loan request.
What we are seeing now is that if you want $10,000,000.00 for example and the project only generates $6,000,000.00 The lenders are not coming back and offering six million they are just denying the inital loan request. You may say that this is unfair, but what I believe now is occurring is that the lenders only want to deal with sophisticated borrowers and sophisticated financial brokers/mortgage brokers.
If the broker that you are using is not able to determine the appropriate loan sizing then they are not the right ones for you.
The game my friends has changed drastically within the last three months. Knowledge is power more than ever. To determine Return on Investment for your project you need to understand cash flow, it as simple as that.
What we are seeing now is that if you want $10,000,000.00 for example and the project only generates $6,000,000.00 The lenders are not coming back and offering six million they are just denying the inital loan request. You may say that this is unfair, but what I believe now is occurring is that the lenders only want to deal with sophisticated borrowers and sophisticated financial brokers/mortgage brokers.
If the broker that you are using is not able to determine the appropriate loan sizing then they are not the right ones for you.
The game my friends has changed drastically within the last three months. Knowledge is power more than ever. To determine Return on Investment for your project you need to understand cash flow, it as simple as that.
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