Business Loans are Getting Done

By Guest Author Bill McDermott

Everybody loves to hear a good story.  Especially about how business loans are getting done in this current banking environment.  If your looking for a business loan, please read on.

This company helps businesses with IT infrastructure solutions to increase business agility.  They needed a line of credit because there are timing differences between collection of receivables and payment of payables, mostly salaries.  The company incorporated in mid 2008.  So, they didn’t have the three years of financials most banks are looking for.  Frankly, they only had one full year of operations and some good interim results in 2010.  I started working with this company in September and it took us seven months to close this line.  Here’s how we did it.

First, find a healthy bank and get them comfortable with your background and work experience.  We started a dialogue with the bank and predicted what the company would do in 2010.  The company had a great year in 2010 combined with a good one in 2009.  That really helped the bank get comfortable.

Second, the bank wanted a bank loan with monthly reporting and two covenants, a cash flow covenant and a debt to worth covenant.  If the company had good cash flow (which they did) and didn’t pull it out in distributions (which they didn’t excessively) the bank was comfortable.

Third, cash is king and this company had a great cash position. While its tempting to distribute a large portion of your profits, remember that your bank is willing to take about 80% of the financing risk if you’re willing to take the other 20%.  The bank was willing to go 75-25 in this case because the company was new.  But, the company only required about 55% of the bank.  Because they had a lot invested in the company, this made the bank comfortable.

The secret to success here was to be patient enough to let the bank get comfortable with two full years of profits instead of one.  We found a healthy bank that was willing to make a business loan with this company on a conservative basis.  The bank and the client came to an agreement that was a win for both parties.  There are many success stories like this out there.  If you’ve had a success story  with an SBA loan or a bank loan recently, please share it with us.

Bill McDermott
McDermott Business Solutions