Getting Your Banker to Say Yes to Financing Needs...Getting Financing For Your Business

Getting Your Banker to Say Yes to Financing Needs...Getting Financing For Your Business

Business Banking 101

Knowing how to best package your business and to present yourself to a banker is essential to getting your bank to say yes to your financing needs. This is the third part of the series of Getting Financing For Your Business. Integral building blocks to this series can be found on this blog and are entitled and are available on this blog:

Building Your Business Credit...Getting Financing For Your Business

Top Five Criteria Banks Use to Extend Financing/Credit Lines...Getting Financing For Your Business

These are the essential components of getting a loan and this article, Business Banking 101, is the "icing on the cake." Putting a well-organized and thought out loan package together is the last step in our series of Getting Financing For Your Business. The loan package will be the documents that the bank will use to evaluate your loan should be presented in a well organized and typed format. These documents will be first reviewed by your primary bank contact and then forwarded up the "ladder." Thus, having the documents well presented and in order are essential to ensuring that your data is reviewed thoroughly. A poorly presented package, regardless of your other qualifications, will do much to have it quickly ignored and discarded. A well-presented package should include most or all of the following, depending upon your particular circumstances:

-Income Tax Returns. Corporate and Personal Income Tax Returns for the last three years. Corporate Tax Returns should ideally reflect a positive net worth/retained earnings and a positive and growing net income. Though banks frequently extend credit to companies that have a negative net worth and a recurring loss on their books, it is much less likely than when a bank sees that a company is managing well their own financial results and operations. Tax returns should be prepared by a CPA who is well informed and versed in your business and all taxation issues impacting your business. Having returns prepared by anyone else is a recipe for failure in both the loan process and the legal mitigation of your annual income taxes due.

-Interim Financial Statement. Banks want to know what is currently going on in your business. Unless the year is just over (less than sixty days), then it is prudent to have a interim financial statement prepared by your CPA showing the proper classification of assets, liabilities, revenues and expenses. A banker, like all prudent investors/lenders/owners of a business should first look to see if there is a positive retained earnings and net income. Failing to have these as integral components of your internal financials will not bode well for the approval process. Frequently there can be prudent management decisions made to help ensure that financials presented put the company in the best light possible. For example, presenting your April interim financials that show a profit will be more meaningful and beneficial than presenting your March interim financials, which reflect a loss. Also providing a narrative of any significant issues, trends, concerns and operational issues is a great way to "pre-answer" any potential questions.

-Current Net Worth Statement of Owners/Guarantors. Often banks and lending institutions will want for you to have available for their review a Statement of Net Worth. Most lending institutions will have a form that you can use for this purpose and many want the information presented on their standardized forms. This form lists all of the owners/guarantors personal assets and liabilities. Being sure to list all of the information both completely and succinctly will make this easier for review. Also, being sure not to unduly inflate any values on the forms will add credibility to the package. Two of the more widely inflated values include the valuing of home furnishings and stock of a closely held corporation.

-Credit Reports. A credit report is an independent source of information that a potential lender uses to evaluate a banking credit. Although any lender is going to pull one on their own as well, you being sure that you are aware of and have adequately addressed all potential blemishes is essential. Clearing any potential problems off of your credit report prior to submitting any loan package will do much to gain favor in the review of your package. Your goal should be to ensure that a potential lender does not "discover" any nuances or missteps in your package being sure to cover all of your business strengths as well as weaknesses adequately.

-Business Plan. Especially for longer term or permanent financing, having a well-thought out and organized business plan is essential as it will "lay out" and tell the story of your business, its operations, how you plan to use the money, how profitable you anticipate the business to be in the future and most importantly to the bank, how you plan to repay them. Working with a CPA who is well versed in business plan development is essential to providing a package to a bank.

-Aging. If your business has a large amount of accounts receivable or accounts payable, it is suggest that you include in the loan package a recapped aging by customer/vendor. This will assist a potential lender in evaluating whether your billings and collections are up to data as well as highlight any potential collection issues. Also this will allow the banker to evaluate your liquidity and your ability in keeping all your company's bills and financial obligations current and paid.

-Detail Fixed Asset Schedule. If your business has a substantial amount of their net worth invested in fixed assets.

-Substantive Corroborating Information. Every package is different and needs to be treated accordingly. For what might be desired to emphasized in one package may not even be listed in another. Being sure to list all of the important substantive issues such as upcoming events, sales, acquisitions, product line enhancements etc. would all be important and critical to share on the front end of any loan package request.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/  (An Atlanta CPA firm) and for his latest book Overcoming Life's 9/11's: Job's Journey and to learn about his ministry visit http://www.john-dillard.com/