Masonry Magazine April 2003 Page. 37
Making requests for loan or lease funding
Making requests for loan or lease funding requires that you prepare well in advance. Typically the payoff is going to be considerably higher than the amount indicated by the payments made and the difference between the two numbers equals the interest. Divide the amount of the outstanding lease at the beginning of the year into the interest to get an actual rate. When you are shopping leases between institutions, this number is going to be the one to compare.
OK, we have provided for three years of tax returns and separate statements to pick up accruals, but you are also likely going to need your financial forecast for the next three years of sales and profits to get any real money. This forecast should include growing retained earnings, receivables and inventory. If you get your CPA to do these projections with your input it will be on his or her letterhead and much better as a presentation with credibility, plus it will probably all add up.
Today, projecting a 10 percent per annum growth rate on sales and a three percent growth in expenses should provide a nice foundation of increasing profits for your lender. If you can do better based on actual experience-don't hold back-but be prepared to defend your assumptions with an attachment. Each assumption needs to be numbered and lined up with the forecast amounts, by number.
Personal Guarantees
In masonry and masonry supply businesses, this overall approach is likely to attract support from financing. However, losses are not a palatable thing for banks or non-bank lenders, such as CIT Group, and if you have losses in the past three years, you might need to be prepared to put up additional collateral in the form of real estate, often the owner's residence, to secure working capital (working capital pays payroll and supplier bills while you await collections on jobs completed).
Personal guarantees are a high likelihood on almost anything you borrow today, and thus having a 401(k) plan building up in your business is probably a good idea. This increases your personal net worth each year even if your company is not increasing, using tax-deductible contributions. Borrowing clauses in 401(k) plans would allow you to get access to savings without exposing the assets themselves to creditors in the event of a judgment or bankruptcy.
In closing, making requests for loan or lease funding requires that you prepare well in advance. Use your accountant to help dress up your operating history and your projections and keep retained earnings in the company to show net worth which will make your lenders feel you are a borrower of substance. Plans resulting in the distribution of all earnings, such as those that apply to Sub (S) corporations and LLC organizations, make it more difficult to borrow, in this writer's opinion.
Wayne F. Currle is Chairman and CEO of Incentive Capital Management, Inc. He has been a financial planner and investment advisor since 1970. Call 404-259-3992 with any questions or send them via e-mail to incentivecap@aol.com, attention Wayne Currie, CEO.
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The Voice of the Mason Contractor
April 2003
Masonry 35