Latest Posts

Where is Small Business Lending Headed?
Posted 12 January 2012 by Kim Eberhardt  Add comment

Negotiating Techniques 101
Posted 28 November 2011 by Kim Eberhardt  Add comment

3 Things Every Entrepreneur Should Know before Starting a Business
Posted 08 November 2011 by Kim Eberhardt  Add comment

Hennessey Capital's, Capital Conversations, is a blog, podcast, and social media portal
designed to provide entrepreneurs with. . .

  •        Tangible strategies and best practices to grow
        their business.
  •        Insights into financial trends and how they impact
        small businesses.
  •        Tips on accessing capital and managing cash flow.

Where is Small Business Lending Headed?

Written by Kim Eberhardt
Thursday, 12 January 2012 14:40

By Toby Dahm, Senior Vice President, Hennessey Capital

Recent economic data suggests that the U.S. economy is beginning to shake off its grogginess and is poised to move forward.  A key factor for small businesses to participate in the upturn is having sufficient funding to support their growth.  Limited access to capital has perhaps been the greatest hurdle small businesses have faced the past four years.

It appears that finally, the credit freeze is thawing.  In a January 4 article by Angus Loten of The Wall Street Journal, he reports that “small- business lending hit a four-year high in November.”  What does this mean for small businesses that need to borrow to grow?

Money is out there, however, not all lending institutions are lending.  Some national banks and many community banks are still licking their wounds from the recession and are not in a position to expand lending.  The willingness of healthy banks to lend is largely based on their preference to balance their loan portfolio which often is heavily weighted with poor performing commercial real estate loans (CRE).  This means that banks have s stronger appetite to make general business loans, known as commercial and industrial loans (C & I).

There is money for CRE loans, particularly those supported by the small business administration (SBA), but traditional CRE loan standards have tightened up significantly.

How attractive is the market for C & I loans?  As Mr. Loten of The WSJ reported, this market is as good as it has been in four years.  However, if you are seeking a C & I loan, you need to carefully select the lenders you apply with.  If you want ongoing interaction and responsiveness to changing needs, such as a revolving line, or frequent loan requests to support growth, a community bank is probably a better fit.  They tend to maintain a lower loan to staff ratio which allows them to spend more time with individual clients.  If you are looking for a low cost, transactional loan such as a term loan, or a lease, a national or large regional bank will be a better fit.  Be aware of centralized decision making and limited access to a relationship officer, which makes them better suited for transactional vs. relationship borrowing situations.  The larger banks also tend to have a broad offering of non credit services, such as cash management, international trade, investment advisory, etc.

Specialized lending such as asset based lending (ABL) has filled much of the void left as the banks pulled back.  This is due to the ABL focus on collateral and cash flow rather than on historical financial results.  An asset-based line of credit is often a better fit for small businesses than traditional loans due to flexibility to support rapid growth or unique needs.  ABL can also be used in conjunction with bank loans.  This type of three party lending arrangement is often overlooked, but can be a great solution for a growing business.

It is encouraging to see our economy gaining traction, and recent data points to a strong start in 2012.  Small businesses need appropriate funding to support this growth and I believe that there will continue to be more access to both traditional and specialized forms of lending.  It is very important to understand which lending sources are the best fit for your needs and current situation.  Being with the right partner will give you your best chance to realize the opportunities that our awakening economy will offer.

 

Negotiating Techniques 101

Written by Kim Eberhardt
Monday, 28 November 2011 16:31

By Jeff Wright, Senior Vice President, Hennessey Capital

Negotiation is all about resolving a situation that creates a mutual gain for both parties, For this to happen, you must keep an open mind and understand that everything is negotiable, keep the discussion positive, listen until it hurts, and be patient. Developing these skills go a long way towards building a relationship with your client.

Negotiations can be broken down into four phases, preparing, exchange, bargaining, and the closing. John Wooden, the infamous basketball coach at UCLA, once said that if “you fail to prepare then you are prepared to fail”. If you do not have an understanding of your client’s business and their wants and needs, you are doomed from the start. Gather as much information about the company and the person you are meeting prior to your initial meeting so that you can talk intelligently about their business and ask the right questions. Gaining company information directly from your contact, visiting their web site and asking a third party will help in assessing their business. Identify your most desired outcomes, goals, least desired outcomes, and best alternatives. What are you willing to accept as your bottom line? Be aware of your assumptions and be able to support your position. The focus should be on building trust, relationships and interest with your client.

During the initial exchange, start with some informal small talk. I look for family pictures or items in a person’s office that may provide some clues about their personal life. The small talk helps put the client at ease and gets them talking about his or her interests and can act as a segue to discussing their business interests. Be sure to understand their needs early in the process and develop a joint agenda to address those needs.

During the bargaining phase, understand who your competition is. Limited competition may allow you to negotiate from a position of strength and be more aggressive in getting your desired result. With plenty of competition you need to be more flexible and creative in your bargaining strategy. Don’t be afraid to think big and ask for what you want but be ready to challenge first offers. Never say “no” or “yes.” Use the “yes if” strategy to ask for something else you may want. Trade concessions that address their interest. Look for body language and facial expressions as an indication of acceptance or denial. Use it as an opportunity to ask probing questions to explore or create other options. Be cognizant of your own body language and facial expressions. You don’t want to give the impression you are upset and refuse to consider other options. Move slower with smaller movements without putting all your cards on the table. When you believe you can meet their needs under terms acceptable to you, make your proposal.

In conclusion, summarize your understanding of the terms and conditions so that there is no misunderstanding. If there is a misunderstanding, be graceful to avoid any conflict. If you reach an impasse do not be afraid to walk away from the table. It allows time for each side to assess its position and consider other options. In any event, always thank them. Now you are ready to negotiate!

 

3 Things Every Entrepreneur Should Know before Starting a Business

Written by Kim Eberhardt
Tuesday, 08 November 2011 18:49

 John Seeley, Business Development Officer, Hennessey Capital

Sometimes, entrepreneurs come up with a ‘game-changing’ business idea that will revolutionize the current industry.  Other times, they are trying to improve on a current idea, by adding their own expertise.  One characteristic that seems to overlap many start-ups is that the focus is on the idea or the product, with less emphasis on the financial minutia of creating and running a business.   The following are three things that every entrepreneur should know before they even register their business with the local agencies:

1. What are they REALLY good at?

This is a vague question because it covers various points that are all important. 

  • From the business level: What differentiates them from current providers?  Why will people buy from them instead of their competitors?  Anyone with the idea that they will not have any competitors should
  •  On the personal level: What will be THEIR role in their company?  Not every great salesperson makes for a great sales manager.  The ability to balance a checkbook does not necessarily make for perfect bookkeeping or create CFO skills.  Besides, if they are great at sales, they shouldn’t be doing bookkeeping, because they should be focusing on increasing revenue.  Someone who thinks they can do it all risks becoming a jack of all trades and master of none.

 2. What is their financial strength?

Again, this opaque question encompasses multiple aspects that need to be considered:

  • Does the entrepreneur have the personal liquidity to sustain him/herself in the beginning when the business isn’t earning money?  For how long? Company failures often arise from overly optimistic projections that end up in financial ruin.  A common bit of advice given is, “estimate the worst-case scenario and double it.”  If a person starting a business also has to worry about paying their rent or mortgage and buying groceries, they will be distracted from growing sales and product development.
  • What is the company’s funding potential?  Is the entrepreneur going to raise money from selling assets? from friends and family? from a bank or other lender?  What are the assets of the company that a lender would consider?  One of the best rules of business is so good that Danny DeVito starred in a movie with the ‘rule’ as the title: Other People’s money.  It is best to use invested and borrowed money than to lose your own personal assets.  Many people do not want to give up equity or pay interest because they feel they will lose out on future profit, but since most businesses fail, and all businesses require more money than ever expected, borrowing or taking on investors increase a company’s liquidity, while decreasing the owner’s potential personal loss.  Another saying in business: “It’s better to have a small piece of a large pie, rather than have an entire tiny pie.”

 

3. What is the Timing for the business?

As you guessed, this question also has multiple facets.  The entrepreneur must accurately plan the timing for both the entrance and exit of the business even before the first day of operations.

With regards to starting the business, the entrepreneur must objectively decide: Is this the best time to enter the market?  A person starting a business just because they were laid off from their job might not be the best reason.  Also, is the economy right for a start-up of this type?  For example, consumer products companies generally do not do well in a recession.

An entrepreneur needs to gauge perceived demand for their product or service, and ideally have customers, pricing and sales volume projected out, using real demand metrics, rather than the ‘Chinese Rule’ (“if just 10% of the people in China bought this product we would become millionaires”). 

Lastly, what is the timing for the inevitable exit from the business?  When will the entrepreneur know they have succeeded or failed?  What measurement will they use to track this level of success or failure?  Will it be at a certain threshold of revenue or income? or debt?  Nobody likes to fail, but it is essential to recognize failure early and adapt, rather than lose all personal assets and declare bankruptcy due to stubbornness. 

As you see from this article, I have not provided any answers regarding what is right or wrong or factual knowledge you need to learn before starting a business.  I have merely provided you with questions you should be able to answer while you are planning your business.  If you know these three things, then you will know the essentials for starting your business.  Best of luck to you!

 

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