Looking to buy a business and get bank financing in today’s market? The banking world seems to keep changing all the time and even bank employees are surprised that deals which are very bankable 3 months ago are getting turned down. Each bank seems to have a different appetite for the type of clients and also for the type of financing that they provide. Some banks want an unrealistic amount of collateral, others look at real estate and will give a low loan to value coverage. What do you do? Keep looking. Some banks have hit the maximum exposure which they want to have in a particular area, sometimes they only want transactions if the client does not really need you.
Although demand loans can be called at any time, I have recently seen one bank put in their term sheet that even if the client meets all covenants in the bank term sheet, they can call the loan. A demand loan can be called at any time, but it raises a question of why the bank started to highlight the definition of a demand loan.
It appears that banks want to make sure there is sufficient covenants and assets to support loans but they are looking for positive cash flow. It is becoming a challenge to get working capital financing for future growth if you have a weak cash flow. If banking is difficult, why not look at other alternatives, you have angel investors, maybe it is time to bring in a third party investor. Owning a smaller piece of a successful company is better than owning 100% of a failing company. If you wait until the last minute when you are out of cash, you will not end up with much of the company, start early, don’t wait until you are in dire financial straits because by that time, no one will want to invest in your business.