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The Numbers That Matter

Here's a secret: Bankers don't actually read financial statements -- at least, not at first. Here's what they do look at.

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This story appears in the November 2010 issue of Entrepreneur. Subscribe »

If you've applied for a loan, it may surprise you to learn that a banker can look at your company's financial statement and know, in a matter of minutes, whether it's likely to fly. Though the final decision will obviously involve more analysis -- largely to ratify and document the initial assessment -- that first hairy eyeball test is aimed at answering three questions: Can you pay? Will you pay? And, what if you don't pay?

The numbers that determine the answers are probably not the ones you think. The truth is, bankers don't actually read financial statements -- at least not initially. Instead, the bank's credit department crunches your statement though a program that produces ratios based on key income statement and balance sheet numbers. And these ratios are what matters first.

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