Elements of the Funding Process

Ok. I have had a little fun describing the problems out there in traditional commercial lending. So now, let's start looking for solutions.

Before we actually can look at the structure and likelihood of any opportunity being successfully funded, we have to first look at the process and get our arms around the various elements involved.

Today I want to talk about the time element.

Time is your first enemy. The best way to get a deal funded is to start early. Actually, maybe a better way to think about it from a business perspective is to always be looking for funding, at least casually.

Here is what I have learned about the time element:

The normal priority of business is to get funding quickly because of some imminent and real pressure, and the reality of lending is; that the quicker someone needs funding then the more you should be concerned about providing it.

The problem is that borrowers don't start soon enough and lenders see time pressure as weakness. However, neither side tends to acknowledge these facts in the beginning of their relationship.

Also, because most borrowers have to make multiple applications for funding they tend to have less patience with the last lender than the first, which is understandable if you are the borrower, and unfair if you are the lender.

Remember the old adage: "A crisis on your part does not constitute an emergency on mine." There is not a more true statement with regard to funding.

So, what is realistic?

In my opinion any business should be looking at capital requirements over a 2-year horizon, and actively pursuing the funding of those requirements 6 to 9 months in advance. In the recent economy, it can take a year to secure a sizable funding deal.

Ouch! That is painful. Yes, and unfortunately it is more likely than not. I am referring to the entire process from discovery of viable sources to closing.

If you just want to look at the actual time frame for a specific capital source to make a decision about funding, I estimate that you need to allow 45 to 60 days to get through their actual process, and that assumes that you have your act together in terms of plans, documentation, etc.

In conclusion, I want to go back to the comment that you should always be looking for funding, at least casually. Here is the reason. Even if you don't need funding now you may in the future, and the rules of the game are changing daily and so are the players involved. You have to stay current with the rules and the players and the more you circulate in that arena, the more you will know, and the less foreign the process will be. The result is that you will have reasonable expectations relative to the current market conditions.

Remember start early, be patient, and do not appear to be desperate.

Have a good day!