Q: I manufacture gourmet dessert mixes. Soon I'll need an equipment loan. How do I prepare?
A: Congratulations on cooking ahead! Here's the recipe, step by step:
- Get your personal and business tax returns and payments up-to-date. Order credit reports and clean up any errors. Make sure your accounting system can consistently spread the last three years of financial statements (balance sheet, income statement and cash-flow analysis). Put together a 24-month cash-flow projection.
- Make sure your trade suppliers' accounts are current. Collect on stale accounts. Don't have any legal actions pending. Save letters from satisfied customers.
- Contact equipment vendors and price what you need. Look into financing or leasing options from the vendors. Don't concentrate on bank financing alone.
- Visit with your bank on a preliminary but detailed basis. Does it lend to companies like yours? Does it make equipment loans of the size you need? What are standard terms? Review a loan application to make sure you have all the data the bank will want. If the bank is unresponsive or evasive, start looking for a new bank at once.
- A lender will compare your financial performance and ratios to aggregates of similar companies in your industry. Contact your trade association for industry-specific data. Meet with a counselor at your local Small Business Development Center to review the Robert Morris Associates Annual Statement studies data. Be prepared to clarify any differences between your company ratios and the industry "averages" when you apply for the money.
- Make sure the bank knows what a good investment you'll be. Don't overdraw your checking accounts or be late with loan payments. Mix with the bankers at business receptions, seminars or workshops the bank offers. Try to refer new business to the banker. Assume the banker knows nothing about your industry. Whip up an information file on your industry, trends, competition and new products. Whisk by to update the loan officer on good news at least twice.
George M. Dawson (email@example.com) is a small-business consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Upstart Publishing, $16.95, 800-235-8866). Send him your financing questions at firstname.lastname@example.org.