How can I prepare to talk with my banker about a small business loan?
Your Business Credit
Dear Your Business Credit,
My business is doing well, and my accountant suggested I get to know my banker better, in case I need a loan in the future. I made an appointment to sit down with the banker. What will she want to know? Is there any paperwork I should bring? -- Entrepreneur
Your accountant is right: Your banker should be a key member of your team of advisers. To make your business more loan-ready, you will need her input on what the bank wants to see when it evaluates a loan application. A sit-down like the one you've planned is a good place to start building a working relationship that you can cultivate over time.
"It's about really taking the time to get to know the banker as well as giving the banker the opportunity to get to know you and your business," says Anna Colton, the national sales executive of small business banking at Bank of America. "I don't think small-business owners always appreciate how much time it takes."
Don't worry about whipping up a PowerPoint and selling your banker on the business, the way you might with a client. Your banker will appreciate a real, candid conversation.
"It starts with being open about both the opportunities and successes the company has had, as well as some of the challenges," says Colton. "The areas I would encourage a small-business owner to talk about are all the things that contribute to the running of the business."
Some topics that might be worthwhile to cover are:
- What the business's focus is.
- Your products and services.
- Who your customers are and what the common threads among them are.
- How the company is organized.
- What product cycles affect the company.
- The company's goals.
- Where your main obstacles are.
It is possible that the bank offers unexpected solutions to issues you are facing now, notes Colton. Banks have been introducing more technologically advanced services for improving cash flow, accelerating receipts and affording greater visibility into what's going on in your account, to name a few areas, she says.
"We can provide reporting that really helps a client understand how their business is running and give them visibility into where there may be some gaps," she notes.
Banks may also have credit card products available that can help you improve your cash flow. "A credit card can be a good way to finance some of your working capital," she explains.
There are several key documents that will help your banker get an accurate picture of your business. It may take some work to assemble these if you don't have them ready, but view it as a good opportunity to get organized.
- Your business plan, if you have one.
- Your statement of profit and loss.
- Your balance sheet.
- Your equity statement, if you have one.
- Recent tax returns.
Don't get scared off by this list. Most basic accounting systems have a function that will let you quickly whip up a profit-and-loss statement and balance sheet and keep them updated on a continuing basis.
"Looking through the financial documents will help a banker identify whether there are areas where they may need help," says Colton. For instance, you may be spending cash for purchases that could be run through your credit card, generating cash-back or rewards points and freeing up your cash for other things. The bank may also offer programs to help you with customer-appreciation programs, such as gift cards for clients.
Colton suggests drafting a list of your key advisers, such as your accountant, attorney and other professionals who help your business. Many bankers want to work closely with these people and would like to know who else is on your A-team.
If you are talking with a new banker, bring historical bank statements from your previous account, Colton advises. It is also helpful to bring a list of your clients, so a banker can identify problems such as too much reliance on any one customer or type of customer. Also bring a list of vendors, for the same reason.
If you get to the point where you actually do need a loan, bring a personal balance sheet, listing your assets and liabilities, Colton recommends. (You can get this form at the bank). The bank may want you to guarantee the loan personally.
This may seem like a lot of work, but look at it from a lender's point of view. Would you want to loan money to someone whose business was so disorganized they did not have good records -- or who didn't have the personal resources to pay back the loan? You'll be asking your bank to make a big bet on your success and ability to repay the loan, so be prepared.
See related: How to improve your chances of getting an SBA loan
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Published: April 21, 2014
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