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small biz coach

The question: I need cash to grow my business but my bank won't lend me more money. What can I do?

The answer: If you are currently borrowing from a bank and they won't lend you more money it may be because they are seeing more risk in your business growth than you are. Somehow the two of you have disconnected over this.

Banks are willing to accommodate growth but are not in the business of taking on much risk on their loans and so will back off when their perceived risk of loss is greater than what they want it to be. They evaluate your risk on many criteria, such as actual performance vs. expected, market conditions, financial strength and so forth. They need to feel comfortable that you can repay the loans that they give you.

Establish positive working relationships

You need to establish a positive working relationship with them. Beyond e-mail correspondence, you have to be in personal contact with your account manager.

Keep them informed of current events in your company, how you are tracking vs. plan and other details. They do not like surprises.

Your account manager will likely go to bat for you if your situation warrants it. For them to plead your case to the risk managers you need to have a strong and credible relationship with them.

A wise banking executive once told me that regardless of your situation, it is impressive if you have a plan of how you will spend money from loans and how soon you will pay them back. She said, "It is hard to argue with a good plan and it is easy to defend to my bosses…" If you want money, say what you are going to do with it and do what you say you will. Credibility is everything.

Consider other sources of financing

There are other lenders in the market who can provide financing tailored to your specific needs.

If you have hard assets like property you may be able to approach lenders who specialize in real estate portfolios. With them, you may be able to secure long-term financing at reasonable rates of interest and repayment terms.

Other financing is available by assigning your accounts receivable (factoring) or by borrowing against specific purchase or sales orders. This is suitable when you have a short-term need for cash, such as the need to purchase large amounts of inventory to satisfy a large order or when an customer is slow to pay but is not in financial difficulty.

Borrowing using purchase orders, accounts receivable or sales orders as collateral fills a special need but can be costly in terms of transaction costs. There may be special administration fees and higher than usual interest rates attached to the loans. Make sure that you allow for these costs when reviewing the profitability of the sale.

If you expect rapid growth you may want to consider venture capital or angel investors. These investors generally have strategic capability to assist you. You will need to give up a portion of your ownership to secure this type of financing.

Whichever route you choose, think carefully about what you really need and how much it will cost to obtain it.

Brian Brennan is a senior partner at MAX Potential, an organization committed to assisting clients with the successful growth of their businesses. He actively coaches small and medium-sized business owners in all aspects of their growing companies. He is also a chair at TEC Canada.

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