I was having breakfast with a CFO of a government contracting firm last week who shared a story that is instructive and insightful if you hope to successfully exit your business one day.

Two years ago, he was finalizing weeks of deal making on a small ($4.5 million) acquisition.  About a week before the deal was to close, the recruiting manager left the company they wanted to purchase, making the acquiring owner just a bit nervous.  After further consideration the acquiring owner decided to proceed, but knocked a half a million dollars from his offer.  Although pricing is under constant negotiation during the closing process, was a bit unusual and it destroyed the deal.  The sale never happened and the seller is still trying to recover from the personal disappointment and get his company back on track.

Important lesson:  There are critical employees in your business who have the ability to impact your sale and the value of your company.  Here are some guidelines to keep in mind while managing your company sale process:

1 – Keep the process confidential.  In fact, you should not market your company for sale, but rather “considering strategic opportunities.”  Use an outside party to help with your company sale.  Remember, it is much less expensive to surprise your employees with news of a sale then having them surprise you.

2 – Design a retention package for key people that is consistent with your earn-out provisions.  You are likely to have some of your sale proceeds paid out months after the closing based on performance metrics.  These should be coordinated with a retention package with key employees that allows them to share in the upside by increasing the back-end payout to you.

3 – If certain employees are key to maximizing the value of your company at sale time. they are key even if you do not sell the company.  Make sure you have golden handcuffs to keep them motivated to continue to build value in your company.  A well designed plan should always benefit ownership.

There are many moving parts to manage during a business sale, and retaining key employees is one of those parts. Since employees a emotional human beings, they can be one of the most challenging and surprising parts.  Remember, surprises are seldom good news when selling your company.

These issues should be addressed well in advance of a company sale, in fact, they are all part of a well designed exit planning process.  This is a growing field of business advisors and a good exit plan would have saved this particular owners retirement life.

Do You Have a Key Employee Worth $500,000 is a post from: Business Cash Advance provider Instant Capital Solutions.

CIT has been an important participant in the small business loan marketplace for the past 100 years and today, they are in bankruptcy.  A sign of the times but not a reason for panic.

In 2008 CIT was the largest Small Business Administration loan provider.  However, CIT provided just $65 million of business loans in the first half of this year.

I am willing to bet, however, you are not familiar with CIT because they are not a lender to very small business owners like you as they tend to lend to much larger “small businesses”.

So, what will be the impact to American small business owners in need of working capital and small business loans?  Let’s focus on the bullet points today as there will be time to speculate over the next few weeks.

1)      The US Governments $2.3 billion equity position created from its cash infusion a few months ago has been entirely wiped out…Sorry.

2)      90% of creditors have already agreed to CIT’s restructuring plan and they expect to be out of bankruptcy in about 60 days.  They will not disappear but there is no competitor looking to fill the void created by their lack of lending.

3)      Their troubles stems from their SBA lending, so it is fair to assume some changes will be made in their business loan underwriting guidelines.

4)      The “small business loans” CIT is well know for are typically to multi-million dollar businesses with dozens or hundreds of employees.  They are not a significant provider of working capital or small business loans for very small businesses.

The macro economic impact is more concerning.  In the short term as it is very likely businesses both small and large will hoard cash and reduce investment plans in the near term, which will not help our economy.

Have you every had a business loan with CIT?  I’d love to hear what communications they have had regarding their business loans and any changes you can expect.

(Jason Kuffer photo (CC))

CIT Group Files for Bankruptcy – How will this affect small business loans? is a post from: Business Cash Advance provider Instant Capital Solutions.

Often when politicians try to “help” business owners they are just shilling for future votes.  I expect today’s announcement of a “small business bail out” to be no different.

While there are many reasons today’s announcement will have little impact on Main street, here are three off the top of my head.  I expect the political rhetoric from Mark Warner, (D- Virginia),  Christopher Dodd (D-Connecticut) and The White House today will likely have very little impact on small business owners in search of working capital or business loans.

First,  The White House will raise the limits on government-backed small business loans, so what?   While that may sound appealing to the few politicians that understand its impact,  it does not focus on the real problem.  It’s not the lending caps, it is the qualification for loans and tight credit environment.

Also, what about the Treasury’s March announcement of a $15 billion program to purchase pools of SBA loans.  This will really help, but so far has not been implemented.

Secondly, there are plans to “re-emphasize” community bank access to the TARP.  Only in politics does “re-emphasizing” count as policy change or anything substantive.

Community banks do not want to access TARP funds, because they are prohibited from charging any fees on the lending they make.  Other than our government, an enterprise can not survive without charging reasonable fees for the services it provides.

Finally, there is a current requirement that anyone participating in TARP sell warrants to the government giving the U.S. the right to purchase common stock at a set price.  Would you accept government money if you had to give Uncle Sam the option to buy part of your business?

These are my thoughts, do you think this is it rhetoric or real change we can believe in?

White House Small Business Loan Program, Rhetoric or Real change? is a post from: Business Cash Advance provider Instant Capital Solutions.

One of the most popular innovations in small business financing over the past 10 years has been the business cash advance (merchant cash advance) industry.  This industry has provided billions to cash starved small business owners of almost every credit profile over the past decade.

Like most industries, the business loan alternative industry has continued to mature and offer different financing potions that are less expensive and have different requirements for the borrower.  A “non-bank business loan” is one of the most recent innovations in this maturing industry designed to provide loan alternatives to small business owners.

What is a “non-bank loan”?

It is an evolution from a traditional business cash advance.  As the business cash advance industry continues to mature I anticipate additional funding companies will step in and fill gaps in the marketplace.  Initially, business owners who could not get a traditional bank loan for any of a dozen reasons had only business cash advance as an alternative.  Even with great credit and a willingness to sign a personal guarantee, these owners were stuck with higher priced capital and shorter repayment periods.

Over the last year, a couple innovative financial companies have developed programs that have begun to fill this niche.  The first program I call a “non-bank business loan”.  This is an actual loan (unlike a business cash advance) and requires a personal guarantee from the borrower.  However, it is preferred over a cash advance because it is much less costly and does not require any change to your merchant processing company as many (not all) business cash advance companies do.

These programs do not require a change of credit card processor, they simply divide your stated repayment amount by 250 (business days in a calendar year) and take that amount as a fixed daily payment.  Some owners prefer a consistent daily payment which has an even impact on cash flow rather than the variable repayment that cash advance offers.  However, some prefer payments that reduce when revenue slows and increases during strong cash flow periods.  The choice is now yours.

As the economy has worsened over the past year, these companies have continued to provide financing to business owners who qualify, though some have reduced the amount of financing they are willing to offer.  While this funding is very welcomed, the amount of financing is often a source of frustration for business owners with larger financial needs.

What is a “private” non-bank loan?

This business loan alternative is virtually the same but is financed by private investment funds.  They typically offers the same pricing but larger funding amounts, and will typically require more documentation (2 years tax returns) than other funding alternatives, but offer an excellent combination of pricing and lending amount.  Many of these funds will lend up to 6% for your total annual sales (averaged over your last 2 years).  So, if you have averaged $1.5 million over the last two years, you should expect financing up to $90,000 if you qualify.

I expect to see the business loan alternative industry continue to become more creative and innovative as traditional bank loans and SBA loans fail to meet the needs of small business owners in search of working capital, business loans and growth opportunity financing.

Business Loan Alternative: Part II is a post from: Business Cash Advance provider Instant Capital Solutions.

My last post discussed how American Express cut credit limits for business owners when it was needed most and now is advertising how they want to be a part of the economic recovery and a friend of small business.

For the record, they are not alone in their ability to abandon business owners in a time of need.  This Wall Street Journal article on August 12 discusses how wide spread the practice has been and the ability your credit card issuer has to conduct business any way they see fit.

How will you respond?

Amex and others hope business owners forget when times get better, will you?

Business Credit Card Limit Cutting Continues is a post from: Business Cash Advance provider Instant Capital Solutions.

Do you remember how frustrating he was?  He was the cause of problems, putting the Robinson family in danger because of his greed, stupidity or fear.  After the crisis passed, he would deflect blame and grab credit.

That is exactly the feeling I got last night when I saw an American Express ad forecasting a light at the end of the economic recession and the rebirth of a new and better small business economy.  Clearly, their Dr Smith moment.

Reality is that American Express cut credit limits to small business owners in their moment of need.  This not only limited available credit, it cause credit scores for many to drop and their cost of capital jump.  In other words, Amex was part of small business’ problem, not a solution.  When times were tough and the recession was scaring many business owners, Amex cut their risk and ran for cover.  Owners were looking for small business loans and working capital while Amex was taking them away.

Now that things are looking brighter, they want to be a resource and a friend.  Until when…?

I understand weakness and fear, we’ve all experienced that at one time or another.  I understand Amex wanting to protect their balance sheet.  What I do not tolerate well is Amex boldly proclaiming they are part of the solution now that the future looks brighter.  I did not like it when I was a kid watching Lost in Space and I do not like it now when my business is on the line.

I think Zachery Smith is Running Amex Small Business Loan Department is a post from: Business Cash Advance provider Instant Capital Solutions.

“We can’t solve problems with the same kind of thinking we used when we created them.”
– Albert Einstein

I wish I could report that the legislation our law makers finally passed on Friday will have immediate impact on the economy and capital will begin to flow into small business lending quickly

However, it will likely take several weeks before the Treasury Department can create room on lenders’ balance sheets and impact underwriting decisions that make capital available to small business owners.

Essentially, traditional business lending sources will continue to limit or freeze their lending activity for weeks.

There are no shortage of articles about small business credit crunches, including Concerns about how franchise restaurants will remodel or expand in Entrepreneurs Scramble for financing Even my local and Tight credit forces stores, restaurants to be flexible .

While these stories reflect the world of traditional lending, it does not tell the entire story of small business financing and the business cash advance industry which has stepped in to fill this capital void for greatfull business owners.

Business Cash Advance Capital, Lending Programs are Available

Truth is, in the past few months, many of the companies we work with to arrange client financing have raised hundreds of million of dollars in new capital, created new lending programs and seen a significant increase in their small business financing.

We are clearly in difficult times, but there are financing alternatives for small business owners in almost any industry with almost any credit profile.

Stay positive.

Small Business Finance – Much Better than Press Reports is a post from: Business Cash Advance provider Instant Capital Solutions.

Yesterday I was reading an industry publication and the chairman of a fairly large Merchant Services company commented that merchant cash advance is “a great product for add-on sales because ti gives the sales rep the advantage of having another product line to sell.”

I absolutely hate that language. I hate the idea of someone, particularly an industry person, referring to merchant cash advance as a product. It reflects a lack of appreciation and understanding for what this financial tool can really do for business owners if designed properly.

Yes, there is an element of sales with merchant cash advance, but there is (should be) more craftsmanship and design than salesmanship. The language is a reflection of a dominate culture in many companies that are supposed to serve business owners, not sell to them.

Last week I spoke with a restaurant owner who did not take a business cash advance because they could not afford to give up 25% of their Visa/Mastercard sales for repayment. We designed a funding amount that only required a 14% repayment and they were able to put the new funds to work to improve and expand their summer dinning area.

A day spa owner did not take the working capital she was approved for because it required her to change her current credit card processor. We arranged funding with a company that allowed her to keep her processor and sales are up over 12% with the new equipment she has in her spa.

A vet with a very successful pet hospital in Illinois had excellent personal and business credit and also needed equipment for her clinic. She did not like the expense of traditional business cash advance but did like the significant discount we arranged for her because of her credit profile. New equipment arrives next week.

I offer these as examples of carefully designed solutions, not products. As long as sales people view merchant cash advance as a “product” to sell instead of a solution to design and customize, the marketplace will remain under served.

When a “Great Product” is a Bad Idea is a post from: Business Cash Advance provider Instant Capital Solutions.

At $27 billion, the bond market is not only larger, but arguably more important to most small business owners than the more popular stock market. It is the bond market that allows banks to package and sell mortgages, car loans, credit card debt and business loans to investors, allowing them to replenish their balance sheet and make new loans.

The bond market has allowed banks to maintain a strong capital position as they try to manage the sub prime mess. New capital has allowed them to keep lending when in the past they would have turned off the spigot. (Read more – WSJ)

Nationwide, commercial and industrial lending, the critical loans that fund plant expansion, share buybacks and the growth of American small business has jumped significantly over the past 2 years.

The problem, and in my opinion the beginning of the “trickle”, is that many banks have been forced to take on loans and support credit lines they never expected or intended to make. Banks made enormous commitments to companies, hedge funds and private equity firms as they fund share buybacks, acquisitions and take over public companies at a record pace in 2007.

Problem is, banks would have normally sold these commitments to investors through the bond market. However, the buyers have disappeared and the big banks are now holding these loans, taking up valuable room on their balance sheets. Lehman Brothers estimates there is currently $150 billion in buyout loans that still need to be sold by banks and there is the risk of billions more that will go unwanted in the coming months.

Real estate lending has taken the biggest and most visible hit thus far, but we have significant concerns that tightening will extend to the business market and could trickle down to effect small business owners within months.

We continue to work closely with our funding sources, have capacity for $3 million of business funding for the remainder of 2007 and DO NOT anticipate any impact on our capacity or underwriting requirements through Q1 of 2008

“Trickle Down” Anticipated, $3 Million Allocated is a post from: Business Cash Advance provider Instant Capital Solutions.

With a business entity, you need to demonstrate to the business-lending world that you are worthy of business capital (plenty of it) at good rates. The secret combination to unlocking this type of capital is 5,3,1.

Your business will need to have 5 trade references, 3 credit rating files (one at each agency) and 1 bank reference. Lets take a very quick look at each and why they are important to your business.

5 Trade References

If your trade references do not report to the credit agencies, you do not have trade references. There are over 500,000 vendors who will extend credit, but only 6,000 automatically report to the agencies. Obviously, you need to work with some of these vendors.

Does this mean you need to change your most important vendor because they do not report? No. However, I’m willing to bet you do not care who you buy your office supplies from, correct? Now that you have established that account, do not pay it on time, pay it early. Automatically, you’ll improve your business credit score over time because they are reporting you as an early payer. Get the picture?

3 Business Credit Agencies

You need to have an account with each agency, D&B, Experian and Equifax. Equifax reports are developed only from information provided by your trade references, business credit card accounts and leasing companies. Equifax is developed from information provided by your business credit card accounts and leasing companies. (Hopefully you are getting the idea that a real business credit card is an important business capital tool).

D&B is trickier because they have a very aggressive and relentless sales force. With that said, you need to deal with them, but you also need to know HOW to deal with them. I would not suggest you call D&B until you have read Point #10 in our CARE Report – twice! Get it HERE.

1 Bank Reference

Banks are very tricky, but a “low 5” bank rating will help you more than you can know as you build your credit. The CARE Report shows you why and a neat little trick to have you looking great to potential lenders relatively quickly.

I keep referencing the CARE Report because it goes into much more detail that this Blog allows. There are almost 20 pages of strait forward information on how to turn your business credit into a completive advantage for your company. It is a great business tool and one we’re proud to make available to you at no cost – request a copy here.

5-3-1 The Secret Combination to Business Capital is a post from: Business Cash Advance provider Instant Capital Solutions.