Jim Blasingame

Business futurist, award-winning author, speaker and columnist

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Banking

What your bankability says about your business’s sustainability

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Not that long ago, there was a lot of noise and some clarity about the concept of crowdfunding, which is using technology to aggregate the funds of donors/lenders/investors for a specific recipient/business.

During that period, I tried to be part of the clarity by writing several articles about the three different kinds of crowdfunding, which are: contribution fundraising, business lending and investment acquisition. Today I want to revisit the lending model, with some new information.

Crowdfunding lending is like the traditional kind in that a request for funds comes with the promise of repayment with interest over a specific term. Proceeds for a bank loan comes from depositors; with crowdfunding, the cash comes from investors. But unlike the bank loan, crowdfunding lending is conducted almost exclusively online. Individuals use crowdfunding loans, but our focus here is for business borrowing.

It’s important to report that the term crowdfunding is now more widely referred to as FinTech, because the interface process, from borrower introduction and debt service, to return of capital for investors is conducted on a digital platform. At the heart of the purpose of this article is that regardless of the funding source – crowdfunding or traditional – interest and terms on small business loans are always higher and tighter than for any other business sector. Almost by definition, a small business loan is a high-risk decision, for two primary reasons:

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Are you ready to ask your banker for a loan? Part II

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As mentioned in the first of this two-part series, most businesses deleveraged during what I call the Main Street economy’s Lost Decade — 2007-2016. That means they paid off debt and didn’t add any.

So those folks — possibly you — can be forgiven if they’re a little rusty at asking a bank for a business loan. But as the current economic expansion picks up, and you need growth capital to respond to the new opportunity, it’d be handy to brush up on some banking skills.

Last time, I revealed the first three of six loan request questions. Getting comfortable asking for or discovering the answers will improve your chances of getting a loan approval. In case you forgot, the first three are: Who decides? What do they need? How do they want it? Now for the other three.

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Are you ready to ask your banker for a loan? – Part I

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The two elements that define the term “deleveraging” are: stop borrowing and pay off what you owe as soon as possible.

During the period I call “The Lost Decade” — 2009-2016 — this practice was an essential survival fundamental for millions of small businesses. Indeed, across Main Street America, survey after survey since 2009 revealed small business owners reporting emphatically that they neither wanted nor needed a business loan.

Even during the past two years, as economic expansion has finally taken hold, polling has indicated most small businesses have funded growth with their own retained earnings which, by definition, is a product of deleveraging. But as the economy continues to grow, organic capital eventually runs out. And if you’re going to take advantage of sustained expansion opportunity, funding for most small businesses means, ultimately, a bank loan.

The good news is banks are standing by, ready to lend. Especially community banks, of which I’m an unapologetic, unabashed champion. The other news is that since it’s probably been a while since you’ve approached a bank for a loan, it’s probably time to brush up on some of the fundamentals of having a successful banking relationship.

Consequently, I’m going help you get back up to speed on six key questions you need to answer. We’ll cover three this week and the rest next week.

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What caused the 2008 Financial Crisis and could it happen again?

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This week marks the 10th anniversary of one of the most dramatic series of events in human history, when raw, unmitigated greed was allowed to leverage itself, virtually unchecked, to a disastrous end. I’m talking about the Financial Crisis of 2008.

On January 6, nine months before the collapse, part of my 2008 Predictions included this: “There will not be a national crisis of mortgage foreclosures.” 

As noted above, there was a financial crisis that year. A devastating one. But my prediction was correct, because unlike what you may have heard, that crisis was not caused by mortgage foreclosures, sub-prime or otherwise.

The Financial Crisis of 2008 was caused by how Wall Street banks packaged and sold bundles of home mortgages – called tranches – as securities. Creating these securities wasn’t the problem. Mortgage-backed securities have long been an essential funding source of the home-ownership pillar of the American dream. This crisis was caused by that unmitigated greed.

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Blasingame’s 3 Laws of Small Business Capital

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The first sentence in the job description of every CEO should be, “Secure and manage the capital your company needs.” 

Webster defines business capital as, “any asset, tangible or intangible, including cash and hard assets held by the company.” Capital blended with operating cash flow becomes the financial fuel your company’s engine uses to operate with and fund growth.

A small business has three primary sources of capital:

•  Investment Capital — money or assets from you or someone else

•  Retained Earnings — profit you created and had the discipline to leave in the business

•  Borrowed Funds — for most small businesses, from a bank loan

Every once and future small business CEO must be able to deal with capitalization issues, including the three prime capital fundamentals.

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