How can I prepare to talk with my banker about a small business loan?
Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
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Dear Your Business Credit,
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
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.
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."
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
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."
that might be worthwhile to cover are:
the business's focus is.
products and services.
your customers are and what the common threads among them are.
the company is organized.
product cycles affect the company.
your main obstacles are.
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.
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.
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.
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.
business plan, if you have one.
statement of profit and loss.
equity statement, if you have one.
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.
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.
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.
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