Searching for a Bad Credit Business Loan can be very difficult if you are not prepared. I have applied for many business loans from banks and leasing companies over the last 10 years and the bankers tell me the same thing, "People walk into this bank completely unprepared and we have to ask and research 100's of questions to prepare the application for credit." Lenders require monthly variation reports on how you got into financial trouble and how you will move forward in the future. This takes a great deal of preparation with a bookkeeper and an accountant. Software programs like Quickbooks and simply can give you comparisons from year to year and this information is a good start. Print them out monthly and track your revenue and expense monthly. Cashflow is typically where the problem is along with spending. Banks need to see that the company owner is not drawing all of the cash out of the company. Variation reports are very helpful in managing the business if they are kept up to date. This information keeps you ready for banking and upcoming cash requirements. I would recommend talking to a professional first before going to the bank. Some banks have this type of help available. The better prepared, the greater chance you will get what you need for financing. Make sure you have copies of credit reports on you and your company. Be prepared to explain every issue and give them the information before they ask.

My Banking History

I have owned three companies over the last 10 years and managed two large multinational companies in the 15 years previous. The number one issue in small business today is poor cash management. I am one of the people that had poor cash management problems. The old saying that “Cash is King” is so true in the small business world. If any of you were like me when starting out, the house became the security for everything. My wife was in a state of panic for the first three years as we went through the bumps in the small business road. The bank has now removed our house as a security after eight years in business. It can be a painfully slow process!

The house was already on the chopping block for the business and once again, we needed cash to keep going. This time we went to a leasing company to refinance existing equipment. The next time we consolidated all of the loans into one manageable payment. That lasted for about two years when we ran out of cash again.
The lesson through all of this is that I was not a good cash manager. I was paying off bills when they came in, taking draws from the company and not looking forward far enough to see a day when the cash was running out again. I was also overspending on internal equipment like phones and computers when I should have been leaving cash in the company.

I started working with a consultant tracking the cash flow in my company, the typical sales cycles and the payment history of every customer. My consultants past history was thirty years in the banking industry and he was an expert with spreadsheets and cash flow management. This established exactly how much money we would have to work with 90 days in advance and our future cash requirements. This is a cash flow history report. Most accountants can handle this for you if you provide them the information they request. You can do it yourself using Quickbooks or simple accounting packages.

We found that our customers paid their bills very consistently. Some customers paid on time and the majority between 45-90 days making us the bank. The percentages were usually 25% in 30 days, 60% in 45 days and the balance in 90-120 days with a small percentage going to bad debt. The first thing we did was start charging interest to the late customers so they could cover our operating credit line interest. Some of them would not pay the interest, but we always made a point of charging the money. We also gave a small discount to the customers that paid on time and explained to the late payers that they could get a discount if they paid on time. The next step that really paid off for us was having someone call when the invoice was 15 days old to check up on a number of issues. First, did they get the invoice? Second, was there any problem on the invoice or the work provided and third, when would we get a check in the mail or could we pick it up?

We even spoke to companies that will buy receivables at .80 cent on the dollar. We did not go this way because we did not know how hard they would be on the customers in the collection process. We still work with most of the customers to this day. Depending on your relationship with the customers, I’am referring to repeat business here more than anything; this could be a solution for you.

We started this process by tracking the expenses very closely on a month by month basis creating a variation report to the year previous. This really helped immediately to understand where the money was going. We saved about $4,000.00/month by doing this. We cut one job and reduced telephone expenses that were not even necessary. The biggest surprise when we did this process was wasted expenses internally when we were spending all of our time looking to get more new business.

I had to come to an understanding that some parts of my business are best left to the professionals. I will never be an accountant and have no interest in pursuing that career.
I needed to spend money to get expert advice and get a plan together to better manage my business. After going through this process for a year or two, I can now go talk to my banker and explain our cash position and know in advance when we will run out of cash, when we will be short on cash and make intelligent requests for more cash requirements in advance. Banks love to lend money to people that they know understand how to manage the cash they receive. We also started stopping payments every winter for three months on the principal portion ($4,000.00/month) of our loan during our slow period instead of loosing money in the winter months. The bank had no issue with this and just extended the loan another nine months. This could also be a solution for you.

Take the time in your community to find people with this expertise. I hired my consultant on a three hours per month basis meeting just twice a month getting the plan in place. It took us three years to complete. This process will save you many sleepless nights and bring peace to your family.

On the Internet you will find debt consolidation companies that provide these services specifically to small business. Before going deeper into the debt pool, especially if you already have bad debt, take the time to look inside your business and understand it. A lender will not give you more cash if you are not managing what you already have. Running a business definitely has its advantages over being an employee especially when as business owners; we are smart enough to delegate what we are poor at. In this case, cash management.

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