Tag Archives: business growth

5 C's of Credit

The 5 C’s of Credit: 
What Do They Mean To Your Small Business Loan?

One of the most common questions among small business owners seeking financing is: “What will the bank look for from me and my business?” While every bank has its own unique criteria, many use some variation of the five C’s of credit when making credit decisions. Broadly speaking, they are:

  • Character
  • Cash flow
  • Collateral
  • Capitalization
  • Conditions

Let’s take a look at each of these ingredients and review how they may impact your funding request. Review each category, and see how you stack up.

Character ― Your willingness to pay back your loan

What is the character of the management of the company? What is your payment history and patterns in other loans you have taken? What is management’s reputation in the industry and the community?

Bankers want to lend their money to those who have impeccable credentials and references. The way you treat your employees and customers, the way you take responsibility, your timeliness in fulfilling your obligations are all parts of the character question.

This is really about you and your personal leadership. How you conduct both your business and personal life gives the lender a clue about how you are likely to handle leadership as a CEO. It’s a banker’s responsibility to look at the downside of making a loan. Your character immediately comes into play if there is a business crisis, for example. As small business owners, our personal stamp on everything that affects our companies is essential. Because the bank may not know you, your credit score tells the lender how you will pay your business loan. Many times, banks do not even differentiate between us and our businesses. A poor personal credit score is enough information for a lender to outright decline a business loan. In a commercial lender’s eyes, there is no differentiation between handling personal obligations and business obligations. They are one and the same.

Cash Flow ― Your capacity to pay back your loan

What is your company’s borrowing history and track record of repayment? How much debt can your company handle? Will you be able to honor the obligation and repay the debt? There are numerous financial benchmarks, such as debt and liquidity ratios, that investors evaluate before advancing funds. Become familiar with the expected pattern in your industry. Some industries can take a higher debt load; others may operate with less liquidity. As a conservative guideline, you should have $2 of income (business and personal) for every $1 of debt.

Collateral ― How lenders get paid if the business fails

While cash flow will nearly always be the primary source of repayment of a loan, bankers look at what they call the secondary source of repayment. Collateral represents assets that the company pledges as an alternate repayment source for the loan. Most collateral is in the form of hard assets, such as real estate and office or manufacturing equipment. Alternatively, your accounts receivable and inventory can be pledged as collateral. Generally, lenders will want a 1:1 ratio, or $1 of collateral for every $1 you borrow. Bankers typically discount an asset and lend on that basis. So for every $1 of collateral, the bank will lend anywhere from 70 percent to 85 percent of the value depending on whether it is fair market value or liquidation value.

The collateral issue is a bigger challenge for service businesses, as they have fewer hard assets to pledge. Until your business is proven, you’re nearly always going to pledge collateral. If it doesn’t come from your business, the bank will look to your personal assets. This clearly has its risks; you don’t want to be in a situation in which you can lose your house because a business loan has turned sour. If you want to be borrowing from banks or other lenders, you need to think long and hard about how you’ll handle this collateral question.

Capitalization ― How much money have you put into the business?

How well-capitalized is your company? How much money have you invested in the business? Has your business grown? Have you reinvested the profits, or paid yourself a bigger salary? Investors often want to see that you have a financial commitment and that you have put yourself at risk in the company. Both your company’s financial statements and your personal credit are keys to the capital question. If the company is operating with a negative net worth, for example, will you be prepared to add more of your own money? How far will your personal resources support both you and the business as it is growing?

Conditions ― SWOT: What are the Strengths, Weaknesses, Opportunities and Threats that affect your business?

What are the current economic conditions and how is your company affected? If your business is sensitive to economic downturns, for example, the bank wants a comfort level that you’re managing productivity and expenses. What are the trends for your industry, and how does your company fit within them? Are there any economic or political hot potatoes that could negatively impact the growth of your business? (I wrote at length on SWOT analysis in my January blog.)

Keep in mind that in evaluating the five C’s of credit, investors don’t give equal weight to each area. Lenders are cautious. One weak area could offset all the other strengths you show. For example, if your industry is sensitive to economic swings, your company may have difficulty getting a loan during an economic downturn ― even if all other factors are strong. And if you’re not perceived as a person of character and integrity, there’s little likelihood you’ll receive a loan, no matter how good your financial statements may be. As you can see, lenders evaluate your company as a total package, which is often more than the sum of the parts. The biggest element, however, will always be you.

For more information about the five C’s of credit and/or B2B CFO, visit b2bcfo.com.

Grant Thornton Business Optimism Index

Grant Thornton Business Optimism Index Reports Growing Confidence In Economy

Each year, Grant Thornton works with business leaders nationwide to gauge their optimism in the U.S. economy. This project, titled the Grant Thornton Business Optimism Index, was started in 2002 with three key measures over time:

  • U.S. economy: Business leaders’ perceptions of whether the U.S. economy will improve, remain the same or deteriorate in the next six months.
  • Business growth: Business leaders’ perceptions about the growth of their own business over the next six months.
  • Hiring expectations: Whether business leaders expect the number of people their company employs to increase, remain the same or decrease in the next six months.

The most recent survey, available now, was conducted in late 2011 by an outside polling organization, with nearly 400 senior executives from various industries across the country responding.

And there is good news!

While in recent years the responses have been understandably tempered and/or negative, current data shows we may have finally gotten through the worst.

According to the Index, business leaders in the United States have a growing confidence in the economy. Specifically, one-third of all surveyed believe the domestic economy will improve in the next six months, compared with just 18 percent in the third quarter of 2011.

The Index itself rose 11.8 points to 57.9, reflecting increased optimism around key economic measures: the U.S. economy, business growth and hiring expectations.

Some specific data over time:

5/20108/2010 11/20102/2011 5/2011 8/2011 11/2011 
OVERALL Business Optimism Index*67.658.463.069.762.646.157.9
Believe U.S. economy will improve63%34%47%64%45%18%33%
Believe U.S. economy will get worse6%16%10%4%12%46%20%

Growth, we found, is also top-of-mind among our nation’s leaders.

In fact, 75 percent are optimistic about their companies’ growth in the next six months, up from 60 percent in the third quarter of 2011. Hiring appears to be on the rise as well, with 37 percent of U.S. business leaders noting that they expect to increase staff levels in the next six months, up from 28 percent in the previous quarter.

However, the U.S. optimism is still very reliant on how struggles occurring in the global marketplace, including Europe and China, are being dealt with.

Additional data collected over the past two years:

5/20108/2010 11/20102/2011 5/2011 8/2011 11/2011
Very or somewhat optimistic about own business87%76%79%87%79%60%75%
Very or somewhat pessimistic about own business13%24%21%13%21%40%25%
Plan to increase staff44%38%43%49%40%28%37%
Plan to decrease staff12%15%15%10%12%25%14%

When asked what public policy initiative would make business leaders most optimistic about in the country’s future, a job creation program was rated highest, as in the prior quarter.

Please rank in order the public policy initiatives listed below that if adopted would make you most optimistic about our country’s future. Rank from 1 to 5, with 1 being most optimistic and 5 being least optimistic:

Public policy initiativeMost Optimistic
Job creation43%
Deficit reduction31%
European plan to promote international economic security17%
Reduction in effective corporate tax rate7%
Regulatory adjustments to improve IPO market access2%

While we still have a long way to go, this data represents improved optimism in our nation’s future success, growth over time and economic stability.

For more information or for the detailed white paper on the Grant Thornton Business Optimism Index, please visit gt.com.

7 Marketing Tips & Strategies, Entourage Marketing

7 Marketing Tips To Help Grow Your Business

Michael Hunter at Entourage Marketing provides you with seven marketing tips to help your business grow.

1. Create a catchy name and a solid brand

The naming and presentation of your brand is vital. You want to create a name that both represents your product or service and is memorable.

Recently, a new text messaging application came out for smart phones. The only reason why it was successful was because of the name. Kik Messenger did not feature any additional functionality that other applications did not have. People talked about it just because they wanted to say “Kik me later.”

Be conscious of how your brand is perceived in the marketplace. Bad names go nowhere.

2. Focus your message

Before you start writing any of your content, you must be very clear about who your audience is. Don’t try to be everything to everyone. Your message should be laser focused on your target market and demographic. When your ideal client comes to the homepage of your website, reads your brochure, hears your advertisement on the radio, etc. they should have no need to look anywhere else. Your message should expose a common problem and positioning your product or service as the solution to that problem.

Your message isn’t just your written word; it also ties into your branding and visual communication as we explained above. For example, if an investment firm had a product targeting very wealthy individuals; it would disinterest clients if their logo and branding was in big, fluffy pink letters … It doesn’t matter how great their products are, the message their brand conveys does not align with who they are trying to target. The same company would have much more success with a clean, simple logo that communicates professionalism and success.

3. Get organized

Great marketing takes time and organization. The more organization you have and the more systems you can create, the less time it will take. A timeline is a great way to stay on task and execute a multi-step marketing campaign. It’s also an effective way to set deadlines and manage a team. Multiple people working on the same project are likely to be more productive when they have clear deadlines and an understanding of how their assignments contribute to the big picture.

4. Build a database

To be successful in business you must, must, MUST build a list. Big money is in a big list. Most businesses spend 90 percent of their marketing budgets on trying to get a new customer to walk through their door or use their service, yet once that customer walks in the door, most businesses don’t collect any information on them, allowing them walk right back out with no means of future contact.  The best way to build a list is to give something good away for free in exchange for their name and contact information. The more value you provide for free, the more valuable your paid services are perceived to be. People think to themselves, “WOW, if they are giving this away for free, what do I get when I pay for something?”

5. Establish promotional partnerships

Most people that call themselves entrepreneurs are really “solo-preneurs;” Meaning, they try to do everything by themselves. Marketing is not a do-it-yourself thing. There are plenty of ways for you to leverage other people to produce great results for a minimal investment of your time. Promotional partnerships are one of these ways. Instead of lighting your hair on fire trying to make it all happen by yourself, put your mind to work and think of different people that can help you grow your business. For example, say you happen to be an expert in branding. Instead of trying to find clients and build systems to get new clients, partner with local business consultants or coaches to leverage their established relationship with their clients as a way to grow your business fast. Imagine partnering with a business consulting firm that has built solid relationships with 25, 50, or even 100+ clients.

6. Referral programs

As we all know, word-of-mouth advertising is the most powerful form of advertising there is. If your product or service is good enough, people will talk about it naturally; but why not give them an incentive? Structured client referral programs are a great way of maximizing something you are already doing to some extent, by providing great service and asking for referrals. Some of the biggest companies in the world are leveraging referral marketing tactics to grow their business by offering incentives to their employees to refer business to them. Other companies leverage and incentive-ize their customer base to bring in business. Just the other day, I saw a sign in front of a very nice apartment complex that said, “Refer a friend to us that signs a lease and get $500!”

In the online space, referral marketing is called affiliate marketing. There are many people that make a significant six-figure income simply marketing other people’s products and services. You no longer have to worry about content creation. You can market someone else’s product to make you money and vice versa; you can create a product and establish promotional partnerships with other people to take your message to the marketplace.

The bottom line is: Find a way to reward your customers for bringing their friends to you or for promoting your product or service.

7. Integrate social media into your entire marketing campaign

Social media is the new buzz word in business. Everyone knows they need to be on it, but most businesses have no idea what they are doing. Just creating a Facebook page for your business does not mean you are “on social media.” Social media (when used correctly) is the glue for your entire marketing campaign. Traditional forms of marketing like print, television and radio are great at sending a message to the masses, but lacks engagement with the recipient of the message.

Business today is all based on relationships. It doesn’t matter how great the advertisement on TV looks, if a friend tells you they had a bad experience with the product or service, chances are very high that you will not try it yourself. If a TV advertisement is terrible, you have no interest. Sometimes it’s so bad that you even change the channel. However, if your friend comes to you bubbling with excitement about their experience, chances are very good you will try it out, too. See, we like and do the things that our friends like and do; it doesn’t matter how much money someone spends on mainstream marketing. Social media is, at its core, founded on real-life relationships. Facebook just recently reached 600 million users and is still growing; Twitter has over 200 million users; LinkedIn just hit the 100 million mark. Social media is here to stay, and your business must be on it — and do it well.

The reason why social media is so powerful is because it has the ability to create a community around almost anything. Social media is a powerful marketing tool that all your other marketing materials should be driving traffic to and building a database of people that “like” your product or service.

For more information about marketing tips or Entourage Marketing, visit www.entouragemarketing.com.