7 Ways to Look Good to a Lender

Even as interest rates remain at attractive levels, many people looking to start or expand a business venture are having trouble getting a loan. Banks may be pushing great deals on home-equity credit lines and other loan offerings, but they also are being extremely selective about who they lend to.

Now more than ever, you must engender the trust and confidence of your lender.

There's no magic bullet that you can fire to bag yourself a trophy loan. But there are some guidelines that can put you on the right path to your quarry.

Here are seven dos and don'ts when applying for a business loan.

1. Even if you're not organized, look organized. Yes, it's especially hard when you're trying to grow a business and changing your company's internal systems to meet that growth. But this is when looking sharp is even more important."I think the thing that will really impress a banker and get him excited about a borrower is a well-organized package," says Bob Bifolco, executive vice president with Progress Bank in Blue Bell, Pa. What Bifolco likes to see: Three years of tax returns, an interim financial statement, listings of receivables and payables, insurance records that show what equipment the company owns and the assets' possible replacement value and a cash-flow statement for the past year."You bring in a package like that and the banker is likely to immediately deem you as a sophisticated prospect who is running the business in a sound financial manner," Bifolco says.

2. Clean up your "a/r" and your "a/p." That's accountant-speak for accounts receivable and accounts payable. The problem is pretty simple: Lenders don't like it when they see a business waiting for lots of money to come in (accounts receivable)."If somebody is getting paid in 90 days but has to pay his vendors in 30 days, we feel like he has a problem," says Merv Shorr, senior vice president with Banco Popular North America. Old accounts receivable aren't just an indicator of slow-paying clients — they also can be a red flag for nonpaying accounts. Lenders may want to see a reserve for bad debts to reflect potential uncollectible bills.

3. Your assets: Know that lenders care about what they are worth now. "Bankers are going to want to tie up more assets than the loan is worth whenever possible," says Dana Barfield, a financial planner in Richardson , Texas , who specializes in planning for businesses with up to $80 million in revenues. So lenders will look at your assets not in terms of what you paid for them, but rather in terms of what they could be sold for if the business is ever to be liquidated. Overall, this is going to favor the manufacturer with a brand-new production line over the information services business with rapidly depreciating computer equipment. You can't do much about this, but be aware and plan accordingly.

4. Improve your loan-to-value ratio. Desirable loan-to-value ratios vary by industry. Leasing companies, for example, tend to have higher acceptable loan-to-value ratios. Bifolco says that, in general, he likes to see loan-to-value ratios of 3-to-1 or less; Shorr suggests that 4-to-1 is a winner. But there isn't a strict bar for this ratio. "What I'm looking for is a snapshot that will tell me if this company can make it through a few rainy days, through a couple of recessions," Bifolco says. "Not being overleveraged is part of that."

5. Remember that lenders want interest payments plus. It's not unusual for people looking to borrow money to consider themselves good risks if they can show that they can service the debt — that is, produce enough monthly cash to pay the interest on the loan. But that's not enough for lenders these days. Most of them want to see that you can generate enough cash to not only service the debt but also to pay back principal. So instead of just interest coverage, you have to think about — and be able to show — how the business will have total debt coverage.

6. Yes, they want you , but not too much. A business that has a track record of borrowing and repaying always has a leg up on getting a new loan. But lenders don't like to see debt servicing consuming too much income. Debt-to-income ratios of less than 40% are preferred. That means if you are making $10,000 in profits monthly, not more than $4,000 of that should be getting siphoned off for debt servicing."In general, we really don't like debt-to-income ratios of 50% or more," says Melissa Hammit, commercial credit analyst for Woodforest National Bank in Woodlands, Texas .

7. Personal credit dings? Hold back a bit. Lenders say that good personal credit can help with a business loan, especially since many small-business borrowers have to guarantee the loan personally. The reverse is also true: Some dings on your record could hurt you. So try to hold off on applying for a business loan if you've recently missed some payments or had other credit problems. Going more than a full year with a clean personal credit record can make a difference when signing that business loan application.

Your Marketing Bang: Is it Worth the Bucks?

By Joanna L. Krotz

When it comes to getting bang for marketing bucks, too many business owners close their eyes, throw up their hands and resign themselves to guesswork. But if marketing efforts are ruled by luck or instinct, at best, you squander money. At worst, your sales head south.

"In today's business climate, we won't even propose a marketing strategy to our clients unless we can easily measure its success," says John Rarrick, whose Nyack, N.Y., marketing consultancy serves the hospitality and entertainment industries. Rarrick now relies on easily tracked, quantifiable promotions "such as coupons, survey-driven Web promotions and partnership bounce-back promotions."

Here are six other ways to benchmark your marketing campaigns without breaking the bank or overburdening your staff.

1. Get a handle on costs and customers. With business having slowed, many owners are so laser-focused on sales that they forget the other crucial stuff. What could be more important than sales? Well, profits. Sometimes, the more you sell, the more you lose. Before planning marketing campaigns or mounting promotions, Jim Warren at direct-marketing agency Warren Direct in Austin , Texas , suggests that you analyze the cost of marketing versus the profit it must yield. How much, for instance, will it cost to acquire a new customer? Who is your potential new customer? What will get that potential customer's attention? Most importantly, after getting attention, what will drive a response and close the deal? Find out.

2. Set clear goals and define success. The return on marketing investments you seek is likely predicated on your overall strategy. Benchmarks, after all, are set against a standard — be it an industry or individual ruler. "Formulating a marketing strategy that articulates a set of outcomes has to be the starting point," says Karen Webster, president of the Center for Marketing Effectiveness in Boston . After that, "return on investment" for marketing can mean many things, including: Before spending a dime, make sure your expectations make sense for the marketing you plan. Professional associations, community college small-business divisions and local marketing agencies can help you set goals.

3. Stay disciplined and understand your market. FinancialAid.com, an online student-loan consolidator based in San Diego , reaches its target customers via online advertising — a marketing channel that has befuddled and burned dozens of other firms. Launched in February 2000, around the time many dot-coms were fizzling, FinancialAid.com has grown to 33 employees and expects revenues of $12 million this year. The company spends a hefty $200,000 a month on online advertising, according to chief executive Michael O'Brien. But he aims for a very cost-effective 50-cent CPM (cost per thousand). The ads avoid razzle-dazzle. "Our big rule is 'Keep it simple, stupid,'" O'Brien says. To avoid tying up his small staff, O'Brien works to attract only motivated customers — callers with a low level of interest or those who do not have student loans are weeded out early in the process. "You need to understand costs," he says. "It's the conversion rate, not the click-through, that counts."

As a result, O'Brien places ads only on Web sites that provide, as he puts it, "all you need in 30 seconds" — such as Weather.com. Once people visit such sites, says O'Brien, they look for a reason to click on something else. "We have an opportunistic product and a compelling enough argument to make people want to click on our application. But it's a big learning process."Advertising on stripped-down, quick-hit sites works to FinancialAid.com's advantage. Then FinancialAid.com tracks which Web sites deliver what customers to it. Conversion occurs an astonishing 50% of the time, O'Brien says.

4. Survey customers by offering a benefit. Inexpensive e-mail newsletters not only provide value to opt-in customers, through relevant editorial content and promotional offers, but they can also reveal who the customers are and what they want. For example, iMakeNews.com, an e-newsletter application provider based in Newton , Mass. , formats and distributes newsletters and then analyzes how customers interact with them. Along with the newsletter, iMakeNews builds a companion micro-site on the Web, so customer mailboxes aren't overloaded and newsletters can be archived."The micro-site analytics give you e-mail open [rates] and click-through rates," explains chief executive Kathleen Goodwin. You also learn who looked at the information, what they did with it and whether or not they took action — data critical to e-mail marketing. Identifying features or content that attracts strong responses lets you hone messages or refine your product lines. Costs, says Goodwin, run $300 to $2,000 a month, depending on volume and services. "E-mail open rates average 20%," she says.

5. Monitor customer responses throughout the sales process. Once customers are drawn to you, you need to know what brought them in as well as what they want. Find out, as suggests Shel Horowitz in his book, "Grassroots Marketing: Getting Noticed in a Noisy World," why customers chose you instead of a competitor, which benefits pulled them in, and — often overlooked — what else they need that you can potentially supply. You can uncover such information in lots of ways, including simply asking customers who walk in the door, sending out postcard queries, offering incentives for filling out satisfaction surveys, phone research and so on. Then, make sure you can use the information you collect. Set up a database of customer responses — or, at the very least, keep a card file. That way, you gain a history of your tactics and can spotlight what worked with which customers.

6. Kick the tires and keep testing. Don't simply put a campaign or series of events into place and move on. Instead, keep measuring results. Try low-cost experiments and then put resources behind what works. For example: Besides the details you gain from analytics, the real test of marketing is very straightforward. If your marketing is not increasing business, stop doing it. And try something else.

By Joseph Anthony

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