5 D’s of business loans

As we mentioned in our last post, bankers are very cautious when making loans to small businesses — they really want to be confident that your business will be able to make the payments and if not, that they can seize sufficient assets to get their money back.

Our last post discussed how to make bankers feel comfortable by providing them with a solid business plan that presents the financial and non-financial information bankers need to know, although they may not know to ask for it.

But there are other risks too. Here are what is referred to as the “Five D’s of Business Loans”.

Disability usually means that the owner has to work at a reduced level of effort, and maybe can’t work at all. Either way, the business could be jeopardized.

Even worse than disability are drugs, because the best case is that the owner keeps working but squanders the profits on drugs. He/she may become so addicted that he/she takes all of the cash out of the business and liquidates its assets to support his/her drug habit. If the same thing happens with personal assets, there’s nothing left for the bank to seize.

Say a couple who jointly own a business decide to divorce. Usually one keeps the business, and the other wants his/her share of the business as part of the divorce settlement. The big question is where does the spouse who ends up with the business get the cash to buy out the other one? Sadly, business valuators and brokers often see divorcing couples — divorce is a major driver of their business.

Of course, death is tragic on all levels. Bankers aren’t insensitive, but it can mean dealing with an executor who is one of the children of the business owner. It isn’t a rosy prospect for the bank if the kids don’t know anything about the business and its financial affairs.

All of these can lead to default, the banker’s nightmare. There isn’t much you can to do about these risks, except to present yourself as the fine, upstanding citizen that you are, someone who can be trusted to make your loan payments.

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    Market Metrics Inc. helps knowledge-based businesses with strategy, planning and innovation and was founded in 2003 by Greg Graham, a seasoned marketing professional. Greg is a Certified Management Consultant, a member of the American Marketing Association, and holds MBA/BEE degrees as well as a Certificate in Strategic Management. He frequently performs consulting engagements on behalf of the Government of Canada's Industrial Research Assistance Program (IRAP). Prior to Market Metrics, Greg's 21 years of corporate experience encompassed tech start-ups through Fortune 500 companies.

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