I keep reading about the debate playing out across the country among the many interested parties. Who is the culprit behind tight credit and a continuing sluggish economy? Some say banks are still too tight with their credit decisions. Others cite a lack of demand for credit as the problem with growth. My answer: It depends.
It is demonstrably true that hundreds of banks continue to struggle with capital issues, and frankly don’t have the money to lend. It is also true that many banks do have sufficient funds to lend, but are still holding a tighter grip on lending criteria, and only funding the best deals. And both sides can accurately point to a zealous regulatory environment, which perhaps didn’t act forcefully enough when the bubble was inflating, but are darn determined to keep it flat now.
Everyone will agree that the easy money is gone except for those who can demonstrate beyond the shadow of a doubt that they really don’t need it.
But while the opportunity to get a business loan has certainly become more challenging, there are still billions of dollars being lent each month to hundreds of thousands of small businesses. Many of these business borrowers endured the same economic downturn and continue to grapple with the same lower sales demand today.
I believe the difference in the success in getting capital lies in being a better “business” person over being better at the “trade.” What does that mean? In my experience, most people entering business know how to do something that has a reasonable chance to be monetized. Some prepare meals for others, take care of their children, repair their cars, walk their dogs, or sell them new shirts.
It is necessary to develop good â€˜trade’ skills to enter business: you have to be able to do something that others will pay for, like organize an assembly line to produce lots of something, be a good salesperson of something, or one of thousands of other skills that can convert your labor into profit.
But in today’s world, many of these hard-working small business owners know little of how to manage a business, particularly finances, beyond opening a checking account. Balance sheet? No time to figure that out. Profit/loss statement? Not important if there is money in the bank.
So many small business owners have no clue how to navigate the very metrics that bankers and investors turn to first when considering funding their enterprise. I can’t tell you how many financial statements I was given in my banking days that had never been opened by the business owner. They couldn’t read financial statements anyway, and only had gone to the effort of having them prepared because the bank required them.
Of course with a robust capital markets and competitive banking sector, we were too busy trying to make new loans to care. Shame on us for ignoring the problem.
Today is different. It is a new era, and those days are past. Future borrowers will have to have a better command on their business to convince investors and lenders to take a look. Even beyond the fact that there will be fewer bankers to hold your hand, they are looking for business owners who can make smarter decisions faster – before lending money to their enterprise.
Smarter decisions require more and better information, like knowing at least as much about your business as your banker does. And even more, if you really want to be successful for the long term.
In addition to just reading financial statements, business owners are going to have to articulate their short term and long term enterprise plans clearly and make the case for the financial viability of their big ideas. Projecting future revenues and costs with less pie-in-the-sky optimism is a starting point. Providing some down-to-earth financial reality will be what bankers will tune into going forward.
Of course, I have a solution: when there aren’t enough borrowers, train new ones.
This month I am launching the first of what I intend to be an annual series of conferences to provide small business owners with requisite skills to better understand their financial metrics, plan ahead with more accuracy, and tell their story in a manner more compelling to the funder they seek.
This conference, “Stepping Up To Business,” is a one-day event in Atlanta that presents eight workshops and a panel discussion at lunch, plus a seasoned keynote address from someone who has done it – leveraged their way to success and paid it all back on time.
Every instructor is an experienced professional who has loaned the money, invested in companies, generated the financials or planned the cash cycles. They can teach best because they have done it. If it works in Atlanta, it will work in other markets too.
It’s applied learning for people who have every motivation to learn – because their largest investment in this world is the business they own.
Wish us luck.
STEPPING UP TO BUSINESS will be March 16th at the Cobb Galleria Centre in Atlanta, GA. More information is available at SBFI.org/registration.