A recent New York Times article notes that experts are unsure why small-business lending has continued to decrease. Bernanke was quoted as asking: “How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability?” He then went on to say that it was likely all three were contributing factors.

The article posits that small business owners believe that lenders are not lending to creditworthy businesses because of heightened paranoia following the economic downturn, while economists cite potential borrowers’ weak economic fundamentals as the reason for sluggish lending.

According the article, lenders say they have returned to basics in terms of lending fundamentals after being too lax, which means conducting more careful due diligence, including taking into account businesses’ collateral and cash flows. Understanding what lenders are looking for and how a certified appraisal fits into lending criteria can help business owners find the funds they need to grow.

By: Present Value

Additional Reading

Glimmers of Hope in Small-Business Lending

5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)

Lenders Turn to Present Value LLC for Pre-Loan Due Diligence

One of the best ways to help ensure that your company will receive institutional financing is to be well-prepared for the decision. Work to increase your business credit scores by limiting your amount of debt and increasing your number of credit transactions; be able to prove your business’s growth potential; have a stellar business plan in place; and be prepared to tell a potential institutional lender your business’s current worth. 

By securing a certified business valuation, you can make institutional financers sure that the business valuation you give them is USPAP-complaint and meets the standards of the Society of Business Analysts (SBA).

By: Present Value 

Additional reading:

The Appraisal Foundation Announces 2010-2011 Edition of USPAP

The Pension Protection Act of 2006

A recent Time Magazine article reported that many small and community banks are now seeing more demand for loans, which is a positive sign for the economy. According to the article, economists have expressed concern that despite the 3.2% first quarter economic activity growth, there was a lack of business lending activity. Business lending demonstrates business growth, they argue. Businesses in growth mode need financing to purchase equipment and hire staff, and without that there can’t be sustained economic recovery.

As we have discussed in previous posts, banks are lending money, but they are being more cautious about their investments. This means they are conducting more careful due diligence, which includes their own certified equipment appraisals and business valuations to ensure that they will recoup their losses should a loan default. Having a defensible, impartial appraisal in hand can help increase the chances of getting much-needed money for a small business.

By: Present Value

Additional Reading

5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)

Got a Startup? Get a Business Valuation

Present Value: More than an Appraisal Firm

The “Just Take It” Strategy: More appropriate for private companies than for public, this strategy involves the owner of the company drawing a huge salary, giant bonuses, and special shares worth more than regular shares. The owner then has enough socked away to not be dependent on the company after departure.

The Liquidation Strategy: A simple exit strategy, this is when the business shuts down operations, closes its doors, and sells off all of its assets. After a business valuation, of course.

The “Friendly Buyer” Strategy: This involves selling the business to someone who the owner knows will treat it with respect and dignity. The buyer can be a family member, an employee, or even a customer.

The Acquisition Strategy: Many family owned businesses employ this strategy to save the company from second-generation ruin. The owner finds a company that wants to buy the business and sells it to them.

The IPO Strategy: Something of a last resort strategy, this involves taking the company public and convincing investors to invest. IPOs are not only rare (of the millions of companies in the U.S., 7,000 are public) they’re exceedingly complicated. If the owner fails to convince investors, they’ve lost millions, and if they succeed, they’re forever under analysts’ scrutiny.

To read the full article at entrepreneur.com, click here. And as always, before putting in place any exit strategy, be sure to have a business valuation done.

By: Present Value

Additional Reading:

Adjusting Your Exit Plan

Exit Strategies

Some of the important takeaways from the article are:

• Keep an open dialogue with those who will be affected by the plan, such as family members and business partners.
• This is a process that lasts as long as the life of a company and it needs to be continuously refined and updated.
• Find people you trust to work with you on planning, including estate planners, attorneys, accountants, insurance providers, and of course business appraisers.

It’s something to think about because no business owner wants their hard work, blood, sweat, and tears to be all for naught. You can take steps now to ensure the future of your company.

By: Present Value

Other posts you might find interesting:

“Five Myths of Business Valuations”

“Adjusting Your Exit Plan”

“Succession Plans”

“Business Valuations and Estate Planning”

Present Value LLC was asked to determine the orderly liquidation and forced liquidation values for the equipment and a portion of the inventory for the company. The machinery and equipment appraisals took place at two site locations. There were more than 500 capital items and more than 1,000 support items to be appraised. The inventory appraisal included a sampling of more than 20,000 products and goods the company currently had in their inventory.

Present Value LLC was asked to perform this in half the normal timeframe because of the time constraints of the loan. We were able to deliver the report on time and to the satisfaction of the client.

By: Present Value

Additional Reading:

Inventory Control Services

Asset Verification

Case Study: Pre-Loan Asset Verification

The Wall Street Journal’s blog today published an article about the difficulty caused when a business owner died suddenly without a succession plan in place. We’ve written about the importance of succession planning here, here, and here, but a real-life example like this helps underscore the idea. 

The story, which you can read here, describes a financial advisor in his late 50s who was the sole owner and advisor in his company. When he died suddenly, his clients were left with no one to handle their accounts and ended up scrambling to find a new money manager. The irony here is that financial planners always stress to their clients the importance of succession planning, especially in sole proprietorships.

The article goes on to discuss another financial services firm with a middle-aged, sole owner that lost two huge clients who were concerned about what would happen to their accounts if their advisor died suddenly. This proves that succession planning is important for the health of a business even before the plan would be put into action by a death. Perhaps if that business owner had a plan in place, he could have reassured those clients and kept them on his roster.

 If you’re putting a succession plan in place, remember that a thorough business valuation is an important first step.

By: Present Value

These incentives were designed to reduce the fees on loans to small businesses and offer a 90% guarantee to banks that make SBA loans, making loans less expensive for borrowers and less risky for lenders. The normal guarantee for the average 7(a) loan is 75%.

The original $375 million in funding set aside last year for these two measures initially ran out in November, so the SBA set up a waiting list. In December, when another $125 million was put toward keeping the programs running through February 2010, there were more than 1,000 businesses on the waiting list.

The Senate voted to advance a $15 billion job-creation package Monday, but the funds for another extension of the SBA loan incentives were stripped from the package prior to the vote. So as of now, it remains to be seen if those businesses on the SBA waiting list will receive their loans.

These SBA loan breaks revived SBA lending, and enabled small businesses to get access to capital that they had previously been unable to get. Because of the breaks, 7(a) lending is up by 90% since the stimulus plan was enacted despite the fact that other loan activity has declined. Small business groups and many lenders believe these incentives are key to economic recovery and are urging Congress to appropriate the funds to keep the program alive.

Present Value LLC is a certified appraisal company and provider of business valuation services.

By: Present Value

We’ve written multiple posts on why it’s important for a business owner to know the value of his or her business. It’s equally important for a potential buyer to understand the value of a business that he or she is considering for purchase and to know what he or she is getting in the deal.

Of course there are many things to take into account when contemplating buying a business, such as your own strengths and weaknesses, your understanding of business fundamentals, and your understanding of the potential market in which the business operates. Obtaining a professional business valuation can help you better understand the ins and outs of a particular business, like a business’s cash flow, the value of its assets and/or equipment, how the company acquires customers, and the market in which it operates.

If you’re thinking about buying an established business, get an appraisal. You need to know what you’re getting into.

By: Present Value

For a startup company, a valuation can be used as a business performance indicator, reflecting the company’s direction. It can help business owners figure out what’s working and what’s not, and where resources should directed or re-directed. A valuation can also give a deeper, more complete understanding about the competitive forces and drivers in the business’s market.

For any company, a business valuation can provide a snapshot of the business within the context of the market and industry in which it operates, in addition to evaluating the health of the market itself. This can help business owners at any level determine if the initial opportunity is still present and/or whether or not an exit from the business and the market is warranted.

It may be a wise decision for startup business owners to incorporate business valuations on a somewhat regular basis to determine if the company is achieving its desired trajectory.

By: Present Value