A financing nerd's 3 favorite topics...
CHAPTER #2 of 5:
Financial Statements, Forecasting,
Without affecting any of your existing lines of credit or A/R schedules.
PLUS: What you need to do in order to...Cut your Time to Funding in HALF
by doing this ONE SIMPLE THING.
(With two easy to follow 'Cheat Sheets you can download for free).
(If you missed the intro to this guide, go here now...)
Welcome to what is the most important thing you need to do if
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
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...
It will also show you how to position your business, so that when the time is right you're positioned to get the financing you need.
Let's dive in.
In this example we're going to use (p.9 of Lead Mag_U and I...)
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.
Making The Unworkable Workable
To illustrate things, we're going to look at a live example of a Large Purchase Order Financing deal that was recently approved for more than 3x a client's Working Capital Line of credit.
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 a classic example:
Let's say you have the opportunity to secure a Large Purchase Order from a potential new customer...
But you need up to 4x your capital line of credit in order to close it.
To complicate things:
Delivery dates for the new order are spread-out over the course of 18 months...
Lead Time to secure materials is 90 days...
Payment for said materials is due within 30 days of delivery...
And you need to upgrade equipment...upskill staff...hire new employees...
and whatever else it takes in order to get the job done.
On top of this...you need to do this without any new financing affecting your existing lines of credit or A/R schedules.
And you need to get it done FAST or you'll risk losing the deal.
Understanding The Financial Scoring Model:
How To Blow Past The First Stage With A Comercial
Banker In Order To Get What You Want
Nine times out of ten a commercial banker will shut down a deal like the one above within minutes of speaking to you on the phone.
Even if you have contracts in hand...
Even with incredible interim-statements....
Even when it's obvious to everyone that the deal you bring to the table is
'Win-Win' for all.
This is especially true if you're dealing with any of Canada's 'Big 6' banks
(don't get me started!).
You already know that a bank is usually more interested in protecting their money than making it...
In fact, I just helped a new client get financing who was originally turned down for this kind of financing who had a contract in hand from Walmart.
Which is why an application for 3 or 4x your current working capita line of credit is an instant "No-Go".
You can show them how to structure the financing in a way that makes sense.
Here's how to apply the same formula to:
-- XYZ, ABC, DEF
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!
This can be applied to
And would be Perfect
For a Podcaster
The #1 REASON Why
Most Banking Deals Go Down
The #1 REASON WHY most commercial banking deals go down is because it doesn't fit into the bank's Financial Scoring Model.
And a banker will probably determine if it fits in the model within 5 minutes of talking to you on the phone.
A RISK MODEL of sorts, every Canadian commercial banker uses one and it looks like this:
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>>
In most cases, if your business scores 45 points or more on the model above, then there's a strong chance that your application will advance to the next round of consideration.
Score less than 45 points, and it's unlikely that you will secure financing at the commercial level.
This is how a typical banker would score the deal:
XYZ = 34 points
Non-audited financial statements (-4 points)
Obviously, our application is going to get turned down right off the bat if we submit with a score of only 34 (and most likely get us relegated to 'business banking' indefinitely).
But...[the we add the tips about biz plan, etc.]
cut it with a commercial banker.
And in most instances it will get you relegated to 'business banking', indefintley.
Believe it or not, I've gotten clients over the 45-point threshold simply by creating a business plan for them (not that difficult), or getting their financial statements independantly reviewed (a little more work, but has Huge Impact on your score).
So those are things you definitley want to pay attention to -- Easy-Fix opportunities to increase your FSM 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.
If we present the deal to the banker like this:
[image of structured deal -- Cash flow chart?]
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:
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...
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:
[Image : NO DEAL]
[Image : THUMBS UP!]