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Don Welker's Financial Minute

Oct 17, 2017, 8:20 PM


Wish you could get a loan for your business without providing a personal guarantee? Join the club! Most business owners prefer not to put their personal assets on the line in this way. Banks, on the other hand, only want to lend when they’re 100% comfortable that they will be able to get their money back—and a personal guarantee helps provide that reassurance.

Although it can be next to impossible for new companies to get loans without personal guarantees, established companies sometimes can. From what I’ve seen, here’s what it takes:

• Longevity – Minimum of five years in business, but probably more than 10.

• Profitability – A track record of profitability and a demonstrated commitment to using these profits to grow the financial strength of your company.

• Strong balance sheet – Including:

• Quick Ratio (cash plus accounts receivables, divided by current liabilities) of 2:1 or better
• Debt to Equity Ratio of less than 1.0:1

• Collateral – This must be in excess of what you wish to borrow, with the bulk being liquid, such as cash or receivables. Lenders might also be interested in the real tangible value of inventory, machinery and equipment in a liquidation scenario.

• Ability to repay – Lenders want to see a realistic business forecast for the term of the loan showing that your business can easily meet the loan’s debt service requirements.

• Past loans – A history of satisfying past loan obligations in a timely manner, and remaining in full compliance with the loan covenants until the loans are repaid.

• Prompt accounts payables – Demonstrated history of paying your bills in a timely manner, as supported by consistent accounts payable aging with no past due balances.

• Strong management – A solid and consistent management team that doesn’t change from year to year.

• Long-term relationships – Banks want to see that you cultivate and value long-term business relationships, that you’re not changing banks, insurance brokers, CPAs or other professional service providers every year.

Finally, lenders want to know why you don’t want to provide the personal guarantee. After all, if you’re not comfortable providing this, why should they be comfortable putting their money into your business? A good first step might be to seek a reduced personal guarantee based upon mutually-agreed-upon metrics between you and the bank.

Need help getting your loan package ready?
Give me a call! As your part-time CFO, this is one of the many services I can provide.

Oct 3, 2017, 8:16 PM


If wish I had a dollar for every time someone told me that their business’s financial challenges are unique! Chances are, however, that a given business’ issues are not unique. What I’ve seen is that across all industries and business types, at some point most organizations face the following:

• Eroding margins or pressures on margins – This can be caused by changes in competition, the costs of acquiring or producing the product, or other things. In relatively new industries the pressure often comes when others enter the marketplace. In mature industries, you tend to see consolidation, so that the family-owned businesses are now competing against much larger players

For example, when the big box office supplies stores entered the market, many local players went out of business. Suddenly these small businesses were trying to compete against a company that could set their retail prices below the wholesale prices that were available to the rest of the market.

• Government regulations – There might be a slew of onerous government regulations that affect your business decisions. You may have to spend a considerable amount of money to get into compliance with environmental laws, such as purchasing trucks with cleaner burning engines. Minimum wage laws may be making your company uncompetitive in your market. Record keeping regulations can be taking up many hours of staff time. If you’re struggling with government regulations, you’re certainly not alone.

• Inability to support growth – As I’ve discussed in the past, many companies fail to budget for growth and plan for the resources and infrastructure needed to accomplish their goals. If you’re doing a great job of bidding and obtaining projects but don’t have the work force, production capacity, physical space or working capital to deliver, you’re going to be in a world of hurt.

Across all industries, businesses strive to provide their services at a competitive rate and create ongoing relationships with clients who value what they provide. In my mind, making this happen comes down to service, service, service. You’ve got to get the order right each and every time. Train your staff to understand the products well enough to be able to provide solutions to your customers’ questions. Make sure everyone on the team, from the order taker to the delivery person, takes the time to thank the customer. And so forth. Because lousy customer service can kill your sales…which can make all of the other financial challenges discussed here irrelevant.

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