In an economy like this, one of the biggest crunches business owners face is the cash crunch. Customers have begun to be slow payers and some have even buckled under and filed for bankruptcy. Just when you were expecting a check, you get a Chapter 11 notice from some courthouse. As you know, cash is king in an economy like this, so how does one get the cash during the shortfalls of cash flow?

FINANCING VEHICLES

Lisa Key, from Diamond International, Kansas City, Mo., says it isn’t significantly more difficult to get a loan for a truck these days.

“Things haven’t changed all that much. I can still get customers financed through Navistar in pretty much the same routine. If a customer has good credit or there is other criteria that appears to make them worthy, they can still get financed,” she explains. She elaborates on the criteria for loans.

“In terms of credit rating, we’ve gone as low as 500 in some cases if the customer has a track record and we understand what has happened to put them in that rating bracket. We don’t exclude anyone because of a relatively low credit score,” she says. “Those other factors come into play, such as how long (the borrowing company has) been in business, how much business have they done with us, and what is the likelihood they’ll be able to pay the loan off.”

So in terms of trucks, the truck dealership may be your best bet for a successful loan application. The truck manufacturers remain anxious to sell vehicles and have the latitude to work with the buyer.

FINANCING THE BUSINESS

Businesses were booming more than a year ago. Expansion was part of the mindset and some debt was taken on to move forward. In a growing economy, perhaps some poor spending habits or inefficient processes weren’t properly dealt with, leaving you vulnerable when customers started cutting back or leaving. It’s easy to be inefficient during a healthy economic climate.

With the business hitting some bumps, you may currently need some additional financing to get by until the economy starts to recover. So many business people are wondering where they can get this much-needed infusion of cash. A lot of media attention has been focused on federal stimulus money and the U.S. Small Business Administration. But how will these major programs impact the liquid waste industry?

Last February, when the stimulus package was given the green light, some $700 million was set aside for the SBA (www.sba.gov) to disburse and help small businesses. Let’s take a look back before we move forward, and see how the SBA operated in the past.

As a small businessman for many years, I’d always heard that the SBA was burdensome to deal with. I never dealt with them because I really never had any need, but the criticisms I’d heard about the agency boiled down to: 1. They required too much paperwork, and 2. The banks didn’t like to administer SBA loans because of the slow repay from the government on guaranteed loans. Oftentimes, banks would file to get their guaranteed money and it took as much as a year for the government to pay the bank. Just like with your small business, the banks didn’t want to slog through a lengthy process to be reimbursed.

RECESSIONARY TIMES

So, with the onset of the recession, the SBA was brought forward to pave the way for the process of getting money in the hands of the small business owners who needed it so badly. Many loan programs were developed to help troubled businesses. They include the ARC (America’s Recovery Capital) loan, which would supply up to $35,000 to struggling businesses to meet current debt obligations.

This was designed as a five-year loan with interest paid by the U.S. government over the life of the loan, and no payment due from the borrower until the beginning of the second year. Sounds great. I called several banks to see how ARC loans were going, and mostly they reported that they hadn’t made any of the loans because they weren’t interested in the program. Their explanation for not participating? Not enough profit and too much paperwork. A number of the bank representatives said they didn’t enjoy dealing with the SBA.

It’s important to remember that all of these SBA loans have to go through the banks. The banks gather the information and if they deem it a good loan, they forward their approval, and the loan is approved and guaranteed by the SBA.

Ultimately, the bank makes the decision. And as you might imagine, they are more skittish about handing out money today than they were a few years ago. If you are in need of a cash infusion, whether it be through an SBA loan or traditional bank financing, here are the requirements banks are demanding these days:

Money in their bank. Many banks don’t like loaning money to someone who isn’t “going in” on the deal with them. In some cases, they want the potential loan recipient to pony up as much as 30 percent of the total amount in cash to establish your commitment to successfully building back the business.

A Personal Financial Statement. Many banks will require this document, showing everything you own, what you owe, and ultimately your net worth.

Collateral to secure the loan. The SBA recommends banks do whatever they can to secure 100 percent of the loan in either or both business and personal assets. And the assets are valued at “fire sale” prices, what they could raise through immediate liquidation. This means the assets are worth 50 to 75 percent of real market value.

Your current credit rating. Many banks want to see a rating of 700 or above. Each bank sets its own requirements on a minimum qualifying score. Some banks will still consider a score of 600 and above.

An up-to-date business plan. Many banks will want to see a detailed and current business plan that spells out your plans for the money being borrowed.

THE BIG QUESTION

Once they have the information in hand, bank loan officers will have one last, and crucially important question: “If you are given the loan will you have the ability to pay it back?” Obviously, your business is already stressed, so will another monthly payment simply make things worse?

Before seeking additional financing, jump on the other side of the table. Take on the role of the banker and look at yourself like the banker does. Knowing what you know, would you loan the money? Remember, like any business, the bank’s job is to make money. They don’t want to gather up collateral when someone fails and start selling off assets. That’s not what they know how to do or how they turn a profit.

When it comes to financing, be realistic. The banker is. You’ve all heard the phrase, “If you don’t need the money, the bank will lend you the money.” This has a ring of truth to it, but it doesn’t mean you can’t secure a loan in these troubled times. You just have to be smarter about navigating the loan process these days.