Getting Your Banker to Say Yes Make things easy on your banker--it's your quickest path to capital.
Opinions expressed by Entrepreneur contributors are their own.
Did you know that in many instances when a banker says no to aloan request, the reason is that the borrower simply did notprovide the information necessary for the banker to say yes? Mostbanks will not make an effort to understand a business if the ownerhas not made a concerted effort to explain, in an organized andconcise manner, the following:
- The company's business: what the company will do with themoney it wants to borrow
- How the company intends to repay any borrowed funds
Let's take a look at the basics that every small-businessborrower should cover to ensure bankers view their business in thebest possible light.
Who Are You?
The first rule of every banker is "Know yourcustomer." This means that before a bank can make a loan, theymust have an in-depth understanding of the business, including itshistory, its future, its products, its customers, its suppliers andits owners. The company's business plan will normally includethese topics.
For smaller businesses, the bank will rarely distinguish betweenthe company and its owner. This means the bank will want tounderstand the personal financial circumstances of the owner,including the details of the owner's net worth and cash flow(just as the bank needs to understand the finances of thebusiness).
The bank will also want to understand the owner's character.The bank will want to examine the owner's personal credithistory on the premise that the owner will manage the company'sdebt similar to the way they manage their personal debt. Personalguarantees will almost always be required. A bank will neverconsider taking on the risk of lending money to a small businesswhose owner will not accept the same risk.
The Loan Package
Follow these tips to ensure your loan request stands out fromthe crowd:
- The package must be well-organized.
- The package must be complete. Requesting additional informationis time-consuming for both the bank and borrower.
- Make it easy for the bank to understand the business.
- Carefully explain how the borrowed funds will be used.
- Carefully explain and document how the funds will berepaid.
- Any required forms should be neatly and completely filledout.
- Be prepared to offer the bank a lien on all the company'sassets.
Following are the supporting documents that should be includedwith every loan request:
- Two to three years' worth of company financial statementsprepared by an independent accountant
- Two to three years' worth of company tax returns
- Latest accounts receivable aging (if applicable)
- Latest accounts payable aging
- A list of the five to 10 largest customers, indicating eachcustomer's percent of total sales if more than 5 percent (notapplicable to retail businesses such as restaurants or shops)
- Personal financial statement of owner(s)
- Two to three years' worth of personal tax returns ofowner(s)
- A company business plan
A business plan is the company's plan for the future. Thebank will want to know whether the company intends to grow and howit will achieve its growth objectives. The bank will want to knowhow the company will compete and how it will function in bad times.The business plan allows the banker to become your"partner" and makes it easier for him to say yes.
Bill Fiduccia is afounding partner of BizPlanIt, a professional business planning consultingfirm that helps early-stage, emerging-growth and establishedcompanies prepare clear, concise and compelling business plans thatget results.
