Our guest blogger this week is K. Suzanne Goff Guitierrez, business banker extraordinaire.
Credit for your Business
Several of the key ingredients to obtaining financing for your business are the basics: Credit Score, History of more than two years with Net Positive Income, Positive Net Cash Flow, where Total Assets are more than Total Debt, and a Positive Net Equity.
When approaching a bank to request financing, being prepared will make it a productive meeting for both parties. As the business owner it is crucial to understand and identify some basic financial information.
Know your numbers: You should be prepared to discuss the last three years of profitability, so make sure you study your company’s financials, understand them and know where the numbers came from. What are the last three years of Gross Revenue? What are the last three years of Net Income? What are your total assets for the last three years? What are your total liabilities for the last three years? What is your beginning Equity? Your ending Equity? What are your Retained Earnings for the last three years? How do you (the owner) compensate yourself? Be prepared to answer any questions the bank may have about your numbers.
Have a business plan: Having a well laid out plan indicating where you are, where you want to go and how you are going to implement it goes a long way in helping a lender understand your objective. The plan should also include what the purpose of the loan is and how you intend to pay it back. Including a “Plan B”, just in case your plan or revenues do not hit the projected amount will help to answer questions a lender might have about the ability to repay the debt.
Bio/Resume: Have a current and up-to-date Bio and Resume of the owners as well as a history of the company will get the lender insight to the people who run the business and how you have done so far. This “story” helps to fill in the gaps and answer questions that the numbers don’t always tell. Make sure to add any explanation for downward trend in revenues or increase in expenses. This is also the opportunity your company has to shine and list your awards and achievements.
Financial Package: It is very common for the bank to want a complete financial package. This should include 2 to 3 years of your company’s most recent tax returns. Make sure to include all pages and schedules which will help the lender understand where the accountant arrived at the numbers. To complement the business tax returns, you should include the last two years of company financial statements as well as year to date. The Balance Sheet and Profit & Loss reflect the actual numbers of the company that a Tax Return doesn’t always show. Be prepared to include an Accounts Receivable and Accounts Payable Agings with the dates to match the Balance Sheets. You should always include 2 to 3 months of bank statements. This will show the account balances and cash position of the company. All owners of the company having 20% or more should be able to provide a current Personal Financial Statement as well as 2 to 3 years of Personal Tax Returns. This gives the lender a secondary source of repayment for your loan.
Make sure to interview the banker/loan officer. You want a banker/lender who understands the underwriting process and can explain the banks position. Unfotunately in this environment you often get a “nice person” who acts more like an order taker, but does not have the knowledge to answer your questions. Steer clear of this situation because your information is often entered into a computer system and not looked at by a person.