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Upticks in the economy and more confidence in the marketplace are positive signs for businesses who seek to grow this year. Traditional financing options are more appealing as business owners achieve clarity and assurance about the future. Concurrently, banks are willing to expand the scope of who they lend to and are seeking investment opportunities. This creates an optimal scenario for prospects to secure fixed term debt with attractive lines of credit.
After a business has funded certain capital requirements, acquiring comfortable financing terms is integral to establishing a growth strategy. After the financing proposal has been assembled and a potential lender identified, a business owner should prepare to negotiate with a lender.
Some points of negotiation can include:
Business owners are often required to be the guarantor of a loan to satisfy the bank’s strict lending guidelines. Be aware of the risks of guaranteeing a loan: your personal assets may be compromised and/or this could impede obtaining other credit. If you have sufficient collateral as a secondary repayment source, consider requesting the bank to eliminate or adjust the personal guarantee requirement.
Be bold and ask for a limited guarantee. Even if your lender is reluctant to accept a limited guarantee, have fortitude and persistence to negotiate a workable covenant for your business.
Here are covenants to be aware of that are potentially worth negotiating:
1. Minimum cash balance
2. Minimum working capital ratio
3. Acquisition of additional debt
4. Dividend payout limitations
5. Subordination of notes or advances
Another point of negotiation is reporting requirements. When it’s time to demonstrate to your lender a strong balance sheet, a trusted CPA can be your advocate in this area. A full-blown audit is the maximum level of assurance a CPA firm provides. Audits are highly regarded by banks and have a price tag to match. If your company would like to save money on an annual audit, consider asking your lender if a review would suffice. Through inquiry and analysis, a competent CPA firm can generate a review for the bank, which may satisfy their needs and save you substantial money. Another option is to downgrade to compilation, which keeps even more money in your bank account. Simply ask your lender what you could do to abate to the next level.
Remember, the destiny of your business’s success will be determined by your vision and strength. Take the initiative to negotiate better financing terms and you may witness growth beyond your imagination.