Financing the Growth of Your Business

Business activity ground to a halt in many areas during the pandemic. Fortunately, the Paycheck Protection Plan (PPP) program and other relief programs rescued many small enterprises from financial crisis. If certain requirements are met, all or part of PPP loan proceeds may be forgivable — similar to a grant from the federal government.

Loan application stamped "Approved"

The PPP loan program ended on May 31, 2021. Now, struggling businesses might be applying for affordable conventional loans — or negotiating more favorable terms for their existing debt. Doing so can help reduce interest expense and working capital requirements. Don't wait for lenders to make the first move. Here's how to get the optimal terms from your lender.

Read the Fine Print

If you already have a loan, take some time to read or review the fine print on your loan agreement. Or, if you're applying for a new loan, don't take the offered terms at face value. The initial offer is generally what the lender hopes you'll agree to, but there may be some room for negotiation.

Similarly, the assumptions the lender has made about your business's level of credit risk might need to be challenged. You could be in a prime position to negotiate, for example, if your company's performance or your personal credit score has improved over time. Your leverage hinges on how competitive the lending environment is in your geographic area or business sector.

Evaluate Loan Terms

Before delving into negotiating tactics, think about the particular loan terms you want or need. Those might include:

External factors can also affect your leverage in negotiations with lenders. For example, a tight supply of lenders and ample demand for loans can cause lenders to compete — and give your business more leverage when applying for new loans and renegotiating old ones. Businesses in this situation may be able to play lenders against one another to get the most favorable terms.

It's important to prioritize loan terms, based on what's most important to your business. For example, you might be willing to "give" on collateral requirements to get a more favorable interest rate or longer repayment term.

Get Real

When negotiating financing, the trick is to refrain from overplaying your hand and impairing your credibility with prospective lenders. Gathering some intelligence on loan terms extended to similar businesses can help give you a feel for the market and what terms a lender would be likely to accept.

You can gain some insights by having casual conversations with a preliminary list of lender prospects. In doing so, you can also save yourself time by eliminating lenders from the list that don't deal with many businesses like yours.

Assemble the Paperwork

How you present your business is critical. Lenders prefer borrowers that are professional, prepared and transparent. If there are any blemishes on your financial record, such as a negative credit report or outstanding tax issues, try to rectify them before seeking a loan or attempting to renegotiate an existing one.

When you meet with your lender, bring a full set of financial records, insurance contracts and other relevant documents that might be relevant. The more evidence you have to show that you understand what lenders need, the better. Similarly, prepare your responses to potentially challenging questions that might be asked about your business.

We Can Help

Your CPA can be an excellent source of insights on how to use debt to meet your working capital and other financial needs. He or she can also help negotiate or renegotiate loan agreements with terms that make sense for your situation.

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