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A Commercial Banker's 'Inside Report'

CHAPTER #1 of 5:

How To Secure Up To 4x 
Your Working Capital Line of Credit

Without affecting any of your existing lines of credit or A/R schedules!

PLUS: How To Cut your Time to Funding in HALF...
by doing this
 ONE SIMPLE THING.

(And a bunch of easy to follow 'Cheat Sheets' you can download for free).

(If you missed the intro to this guide, go here now...)

To illustrate the process, we're going to use an application for Large Purchase Order Financing as a primer for nearly ALL types of commercial financing.

Why?

Because if you can qualify for High Projected Growth or Large Purchase Order Financing...

You can Qualify for just about ANY kind of Canadian commercial debt.

Here's the perfect example:

Let's say you have an opportunity to secure a Large Purchase Order from a potential new customer...

But in order to close the deal, you need up to 4x your capital line of credit to produce it.

To complicate matters...

Delivery dates are spread-out over the course of 18 months...

Lead Time to secure raw materials is 3 months...

Payment for said materials is due 30 days from delivery...

And you need to upskill staff...hire new employees...buy new equipment...

and whatever else your business needs to get the job done.

Perhaps more importantly: You need to make sure you can finance all of this

 without affecting any of your existing lines of credit or A/R schedules.

Step #1:

Understanding The 

Financial Scoring Model:

THe #1 REASON

Normally speaking, a deal like the one illustrated above is almost always a non-starter with the banks.

Especially if you're dealing with Canadian banks (don't get me started!).

 

It doesn't matter if you have contracts in hand...incredible financial statements...and  it's Plainly Obvious that the deal you bring to the table is "Win-Win" for every one...

The deal will most likely get turned down because it doesn't fit into the bank's Financial Scoring Model.

And most of the time a commercial banker will decide if your business fits into that model within 5 minutes of talking to you on the phone.  

An initial 'assessment' tool of sorts, almost every commercial banker uses one and it looks like this:

In this example we're going to use (p.9 of Lead Mag_U and I...)

Commercial Financing:
Making The Unworkable Workable

Welcome to what is perhaps the most important thing you need to do if you want to make the jump from 'Business' to Commercial Banking.

It also explains The #1 REASON why most Commercial Financing Applications go down.

And if your business isn't there already, it will show you exactly what you need to do in order to get it done.

Welcome to what is the most important thing you need to do if you want to secure commercial financing for your business 

 

Especially if you want to take your business from 'Business' to Commercial Banking.

Even if your business is not ready for commercial banking at the moment, this quick guide will show you how to position yourself so that you're ready for when the time is right.

 

Underneath it all, it also explains The #1 REASON why most Commercial Financing Applications are shot down in flames from (on first reading (and readings usually don't make it past page 4...)) the get-go.

And what you can do to make sure it doesn't happen to your business (and end-up relegated to 'Business Banking' indefinitely).

And if your business hasn't achieved a level where it qualifies for commercial financing...

Let's dive in.

STEP 1 in The Process:
Understanding The Financial Scoring Model

START HERE?

The 'Secret Sauce':
How to Secure Commercial Financing
For Just About ANY Project...

Including High Forecasted Growth...Large, Complex Purcahse Orders...
and 100% Acquisition Financing!

Normally speaking, a deal like the one above is almost always a non-starter with the banks.

 

Even with contracts in hand...incredible financial statements...

 

And even when it's Plainly Obvious that the deal you bring to the table is "Win-Win" for all.

 

 

 

The #1 REASON WHY most commercial banking deals go down is because they don't fit into the bank's Financial Scoring Model.

And a commercial banker will normally make that determination within 5 minutes of speaking to you on the phone. 

A preliminary 'Risk Model', every Canadian commercial banker uses one and it looks like this:

Scoring Model.png

We will obviously change this

to make it look Way Better --

And Downloadable too.

We should make it so they 

can easily score it themselves.

What's your score? Downlaod a fillable copy of the Financial Scoring Model here>>

Score 45 points or higher on the FSM Scale, and there's a strong chance you'll move on to the next round of consideration.

Score less than 45 points, and it is highly unlikely that you will get financed at the commercial level (and probably relegated to 'business banking' indefinitely).

 

Here's how a commercial banker would typically score the deal:

  • More than 3 years in business = +4 points

  • Non-audited financial statements (-4)

  • abc

 

Total Score:

34 = Deal Denied.

However...

Present the same deal to a banker like this:

[image of restructured deal -- Cash flow chart -- show things 'incrementally']

Voila!

Now you're talk'n 'Banker Talk', and the odds of securing the financing you need have just gone up in your favor

Because now the bank views the RISK Portion of the deal as the Cost of Materials to produce the order(s)...   [is this right?]

Because you proposed (at a glance I might add) that they NOT score the deal based on a whole


Thereby lowering overall risk...increasing profit potential...and making it much easier for the bank to exit the deal, if necessary.

Obviously, what you've done here is propose that the bank NOT score your application for credit based on the deal as a whole...

But rather as 'multiple-deals-in-one' transaction that's managed and paid back from cash flow incrementally.

 

That is, to be financed 'Step By Step', and paid back Step by Step.

Obviously, many other factors will come into play when considering the deal, such as A, B, C, (most of which we'll talk about in the following chapters) that are unique to your business and circumstances (and I'm always available for a chat if you need to)

But, the POINT I want to make clear is that you need to structure it from the outset so that the cash flow always supports the FSM model in your favour...

Here's the best part:  The beauty of structuring the deal 'incrementally' like this is that ulimately it is treated as though it were ONE DEAL if it's approved.

Which means that you should be able access up to 85% of the financing upfront...

So you can pay for any new equipment, purchase raw materials, or whatever else it is you need to do to start, scale, or ramp-up production the order now.(We'll touch on this again in Chapter 6 on How To Secure Commercial Financing Without Any Collateral or Personal Guarantee Required On Your Part).

 

In the meantime, now that you have the banker's interest in learning more...

And have demonstrated a deal that's doable in the eyes of the banker...

We need to take a quick look at the back-bone of every commercial financing application, and take a quick look at every banking nerd's 3 Favorite topics of  Discussion:

Financial Modeling...Financial Statements....and Cash Flow Projections...

So we can make sure that we keep the banker's interest going without shooting ourselves in the foot.

Click on the orange link below.

before we can pull this deal together in a way that makes the bank want to give us the money (and, believe me, you'll need to explain why they should even bother giving it to you in the first place (which we'll discuss in Chapter 3)...

We need to take a quick look at the back-bone of a commercial financing deal:

 

Forecasting, Financial Statements, and Cash Flow Projections.

The Back-Bone of The Deal

Click on the orange link below.

Now we've incentivized the deal for the banker...With strong upside and less downside...

Yada. Yada.

To do that effectively, we need to Demonstrate to the banker exactly how we intend to ABC, DEF...

Which brings us to Step 2 Of Our Guide:

Making The Unworkable Workable

How To Structure A Financing Application

So That It's Impossible For A Banker to Say 'No'!

Click on the orange link below:

[Image : NO DEAL]

[Image : THUMBS UP!]

Understanding The Financial Scoring Model:
Passing The First Stage of Financing With A Commerical Banker

The Financial Scoring Model:
Getting Past STEP 1 in The Commercial
Financing Process

Normally speaking, a deal like the one above is almost always a non-starter with the banks. This is especially true...

It doesn't matter that you have contracts in hand...

It doesn't matter that you have fanstastic interim-statements....

And it doesn't matter that it's obvious to everyone that the deal you bring to the table is 'Win-Win' for all.

A deal for 3 or 4x your current working capital line of credit -- and way above current EBITDA -- is simply too far outside the RISK ZONE for a commercial banker.

Unless...

You can show them how to structure the financing in a way that makes sense.

Downloads:
Here's how to apply the same formula to: 
-- XYZ, ABC, DEF

Just realized:
This can be applied to 
Video, etc...

And would be Perfect
For a Podcaster

The #1 REASON Why
Most Banking Deals Go Down

Essentially, if your business generates a socre of 45 points or more, them there's a strong chance that your application will go to the next round of consideration.

Score less than 45 points, and it's unlikely that you'll secure financing at the commercial level (and probably get relegated to 'business banking' indefinitely).

 

Here's how a typical banker would score the deal:

  • In business more than 3 years = 4 points

  • Non-audited financial statements (-4 points)

  • abc

  • Total Score = 34 - Deal Denied.

 

Believe it or not, I've gotten clients over the 45-point mark simply by creating a business plan for them (easy enough to do), or by having their financial statements independantly reviewed (a little more work, but has Huge Impact on score).

So those are things you definitley want to look for -- Easy-Fix things you can do to boost your score from the get-go.

Worse, if we approach a banker with a deal like that, there's a strong chance we'll get relegated to 'business banking' for God Knows how long.

But...

If we present the deal to the banker like this:

[image of structured deal -- Cash flow chart?]

Voila!

Now you're talk'n 'Banker Talk', and the odds of securing the financing we need has gone up considerably in our favor. 

Obviously, that's because we 

Because now the banker can now SEE a structure that might allow for the deal to proceed, (beleive it or not, there are many commercial bankers who are completely unaware of this)!

 

apply more weight to XYZ to help mitigate (lower the  Risk...Risk Factor....

Because you structured the deal in a way that the banker sees the Risk Portion of the deal as the Cost of Materials to produce your orders...[is this right?]

With the Risk spread-out incrementally...

(This is also where cash-flow projections come in, and we'll talk about that in just a moment).

Which makes it a lot easier for them to exit the deal if they need to (this obviously presumes that the raw materials are not considered difficult by the bank to liquidate).

When structured this way, you can secure as much as

4x your current Working Capital Line of Credit....

With 80% of the financing upfront !

Obviously, what you've done in this scenario is propose that the bank NOT score your application based on the deal as a whole...

But rather as 'multiple-deals-in-one' transaction. (the same principal applies to any application that uses Future Forecasting as part of the justification for financing -- (i.e., High Forecasted Growth, or even an increase in your operating line of credit using interim financial statements (which we'll talk about next)). 

The beauty of a deal like this is that... ulimately it IS treated as ONE DEAL...

Which normally means you can access 80% of the financing upfront. 

(We'll discuss this more in Chapter 6 on, How To Secure Financing Without Any Collateral or Personal Guarantee Required On Your Part).

 

Now that we've attracted high interest from the bank...

We need to take a look at the Back-Bone of every commercial financing deal:

and the 'make or break' factors to getting approval...

Financial Modeling...Financial Statements....and Cash Flow Projections.

Click on the orange link below.

before we can pull this deal together in a way that makes the bank want to give us the money (and, believe me, you'll end up having to explain why they should even bother giving it to you in the first place (which we'll cover in Chapter 3)...

We need to take a quick look at every banking nerd's 3 favourite topics:

 

Financial Statements, Forecasting, and Cash Flow Projections.

The Back-Bone of The Deal

Click on the orange link below.

Now we've incentivized the deal for the banker...With strong upside and mitigated downside...

Yada. Yada.

To do that effectively, we need to Demonstrate to the banker exactly how we intend to ABC, DEF...

Which brings us to Step 2 Of Our Guide:

Making The Unworkable Workable

How To Restructure A Financing Application

So That It's Impossible For A Banker to Say 'No'!

Click on the orange link below:

To illustrate, we're going to use an application for Large Purchase Order Financing as a primer for nearly ALL types of commercial financing.

Why?

Because if you can qualify for High Projected Growth or Large Purchase Order Financing...

You can Qualify for just about ANY kind of Canadian commercial debt.

Here's the perfect example:

Let's say you have an opportunity to secure a Large Purchase Order from a potential new customer...

But in order to close the deal, you need to up to 4x your capital line of credit to produce it.

To complicate matters...

Delivery dates are spread-out over the course of 18 months...

Lead Time to secure raw materials is 3 months...

Payment for materials is due within 30 days of delivery...

And you need to upskill staff...hire new employees...buy new equipment...

and whatever else your business needs to get the job done.

Perhaps even more importantly: You need to do all of this get without affecting any of your existing lines of credit or A/R schedules.

Step #1:

Understanding The Bank's 

Financial Scoring Model:

Normally speaking, a deal like the one above is almost always a non-starter with the banks.

 

Even with contracts in hand...even with incredible financial statements...and even when it's Obvious that the deal you bring to the table is "Win-Win" for all.

The #1 REASON Why a commercial banking deal goes down is because it doesn't fit into the bank's Financial Scoring Model.

And a commercial banker will normally make that detmermination within 5 minutes of speaking to you on the phone.  

An early screening tool and RISK MODEL, every commercial banker uses one and it looks like this:

 

Nine times out of ten a deal like the one above will get shot down in flames by a commercial banker within minutes of speaking them on the phone.

And that's espeically true if you're dealing with any of Canada's 'Big 6' banks (don't get me started)!

 

Obviously, banks are more interested in protecting their money than than they are in making it...

Which almost always makes a deal worth more than 50% of your existing line of credit an instant "No-Go".

Unless...

You can show them how to structure the deal in a way that makes sense.

Scoring Model.png

We will obviously change this

to make it look Way Better --

And Downloadable too.

We should make it so they 

can easily score it themselves.

What's your score? Downlaod a fillable copy of the Financial Scoring Model here>>

We will obviously change this

to make it look Way Better --

And Downloadable too.

We should make it so they 

can easily score it themselves.

Essentially, if your business scores more than 45 points on the scale, there's a strong chance that your application will advance to Step 2 in the process.

Score less than 45 points, and it's highly unlikely that your business will get

financing at the commercial level (and probably get relegated to 'business banking' indefinitely).

 

Here's how a typical commercial banker would score your business:

  • Company in business for more than 3 years  = +4 points

  • Non-audited financial statements (-4)

  • abc

  • def

  • hij

 

Total Score = 34 points  Deal Denied.

But...

If you present the deal to a banker like this:

[image of restructured deal showing things 'incrementally']

Voila!

Now you're talk'n 'Banker Talk', and the odds that your business will get the financing financing it needs have just gone up significantly in your favour

Because now the bank views the RISK Portion of the deal as the Cost of Materials to produce the order...  


Which lowers the overall risk...increases profit potential...and makes it easier for the bank to exit the deal, if neccessary.

[NOW GO BACK TO WHERE YOU WERE BEFORE]

There Are A Lot of 'Tricks' to The Trade

Obviously, the deal illustrated above is vague in detail and there are a host of other factors that come into play which are unique to any business that applies for commercial banking.

Some are easy issues to deal with ( such as x, y, and z...

 

To very complex issues that require someone like myself to negotiate .

Believe it or not, I've secured financing for some clients simply by restructuring the deal exactly as I just demonstrated.

In other cases I've gotten them over the line by helping them create a business plan for them (easy enough to do) or arranging to get their financials reviewed by a third-party professional (a bit more work, but huge increase in score).

The point is, that's exactly what you want to look for:  Easy-fix opportunites to increase your FSM score from the get-go, (and savvy readers will notice that tour illustration also shows how we want to pay back the loan too)...

So your application doesn't get shot down in flames from the get-go (happens...A Lot).

It might surprise you to know that most bankers don't even think about restructuring a deal in the way we've described in this chapter...

But it's probably because they don't have experience with many of the other things that I'm about to show you.

 

By proposing that the bank NOT score your application based on the deal as a whole...

But rather as 'multiple-deals-in-one' transaction -- to be managed and paid back incrementally.

 

You asked the bank to evaluate the deal 'Step By Step', and paid back Step by Step.

Obviously, many other factors will come into play when considering the deal, such as A, B, C, (most of which we'll talk about in the following chapters) that are unique to your business and circumstances (and I'm always available for a chat if you need to)

But, the POINT I want to make clear is that you need to structure it from the outset so that the cash flow always supports the FSM model in your favour...

Here's the best part:  The beauty of structuring the deal 'incrementally' like this is that ulimately it is treated as though it were ONE DEAL if it's approved.

Which means that you should be able access up to 85% of the financing upfront...

So you can pay for any new equipment, purchase raw materials, or whatever else it is you need to do to start, scale, or ramp-up production the order now.(We'll touch on this again in Chapter 6 on How To Secure Commercial Financing Without Any Collateral or Personal Guarantee Required On Your Part).

 

In the meantime, now that you have the banker's interest in learning more...

And have demonstrated a deal that's doable in the eyes of the banker...

We need to take a quick look at the back-bone of every commercial financing application, and take a quick look at every banking nerd's 3 Favorite topics of  Discussion:

Financial Modeling...Financial Statements....and Cash Flow Projections...

So we can make sure that we keep the banker's interest going without shooting ourselves in the foot.

Click on the orange link below.

before we can pull this deal together in a way that makes the bank want to give us the money (and, believe me, you'll need to explain why they should even bother giving it to you in the first place (which we'll discuss in Chapter 3)...

We need to take a quick look at the back-bone of a commercial financing deal:

 

Forecasting, Financial Statements, and Cash Flow Projections.

The Back-Bone of The Deal

Click on the orange link below.

Now we've incentivized the deal for the banker...With strong upside and less downside...

Yada. Yada.

To do that effectively, we need to Demonstrate to the banker exactly how we intend to ABC, DEF...

Which brings us to Step 2 Of Our Guide:

Making The Unworkable Workable

How To Structure A Financing Application

So That It's Impossible For A Banker to Say 'No'!

Click on the orange link below:

[ Deal Denied imgage here]

DOWNLOADS, ETC

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