It is clear to everyone that the US is experiencing turbulent economic conditions. In the past 10 years there has not been a more difficult credit climate in which to finance a business and many agree that we are in a recession and possibly facing the wrath of inflation. Truly, when you look at food and gas prices, we are all feeling the pinch.
Is this a red light for business growth and expansion? Should you not go forward with opening additional locations, your first medical spa or adding aesthetic services to an existing practice? What is the correct decision?
If you are able to secure financing it could very well be an excellent time to forge ahead and launch or grow a business. Interest rates are at one of the lowest levels in many years, consumers have historically not veered away from purchasing personal care services during economic downturns and quite possibly you will beat out the other guy who is taking what may be a too cautious wait and see approach.
So what does it take to get financed in times like these? I call it the four C’s. Concept, Credibility, Credit and Collateral.
Concept: You need a solid business plan that clearly communicates your concept including your vision and mission. In addition it needs to identify the market that wants to buy your concept, your consumer, and who else is doing something similar within your marketplace, your competition. Then your concept has to be translated into a financial plan that is plausible based on historical or bench marked information. It needs to illustrate the upfront capital investment along with a minimum of 3 years of top and bottom line projections. And don’t forget, no business opens its doors and is profitable day one, you need to identify the working capital necessary to bring your business to profitability.
Credibility: In order to finance a Concept you have to illustrate that you, your team and/or your consultants have the experience and knowledge to implement the concept spelled out in your business plan. Remember, banks don’t finance businesses, they finance people.
Credit: Your track record in paying your bills in a timely fashion is critical to your ability to secure financing. Lending institutions utilize your credit scores as a barometer of your ability to repay a loan. There are three large credit agencies that track credit and provide scores: Equifax, Transunion and Experian. In today’s credit environment it is almost essential to have a score of 700 or better in order to secure a bank loan with attractive terms. Many lease financing companies will finance equipment for individuals with lower scores but the rates tend to be high.
Collateral: Most lending institutions are seeking close to 100% collateral for business loans. Thus your personal and business assets will be needed to secure the loan. Banks are seeking very tangible collateral such as securities, home equity, etc.
So, don’t let the current economy stop you from achieving your goals and being the entrepreneur you want to be. If you have a solid business concept then check your credit scores, identify your assets and build a plan for success.
I have worked with large corporations, small businesses and individuals to complete over $75 million dollars in all types of financing even during the recessions of the early 90s and 2000s.
On a related topic, I will be presenting the Webinar “Recession Proof Your Medical Spa” on July 10th at 11:00 a.m. EST for the Medical Spa Society. Please go to their website to sign up and join me.