A 12 insight START and STOP roadmap bank assessment for small businesses.
Bank revenue is derived from lines of credit, term loans, merchant service accounts and deposits.
Another source of bank revenue is wealth management services which banks make available to the owners of small businesses as well as their other customers. Consequently banks want your business.
They are seeking long term relationships with small businesses that are in a growth mode. Fortunately bank loans have the lowest interest rates and the most flexible loan terms available.
You probably want access to these low rate loans. You just need a few tips to handle the loan process efficiently and effectively.
The following information with START and STOP signals provides a roadmap for businesses with two or more years of financial reporting that report growth in both revenue and earnings. These successful business usually need capital for business expansion.
1. STOP signs
STOP relying solely on third party financial services.
You may need a CPA to file your tax returns, but management should supervise and comprehend all aspects of the corporate balance sheet, the profit and loss statements and the tax returns. This familiarity with the financial statements will assure lenders that the principals of the company comprehend financial matters and can make wise financial decisions.
Furthermore, if management has to wait days or weeks to receive timely reports from outside financial services, the cost of the delays can be measured in loss of revenue during the waiting period.
2. STOP signs
STOP waiting until year end to update and review your financial records.
Review your profit and loss statements monthly and have quarterly reports prepared immediately at the end of each quarter. Prepare comparable historical reports that reflect growth patterns. Filing tax returns in January rather than waiting until April 15th will put you in the front of the line and decrease the time requirements for loan processing.
You can get a head start by starting the loan process with the internal financial information and providing tax returns that support the financial information prior to loan closing.
3. START signs
START preparing the required back up documents that will be needed prior to loan closing.
Delays in the underwriting process are commonly due to the inability of the borrower to provide supportive information that does not have to be prepared – merely provided. If the historical financial information is acceptable to the lender, the balance of the required documents that needed to comply with bank regulations normally will not impact a loan closing. All you have to do is deliver them.
4. STOP signs
STOP making tax avoidance your priority.
The year-end profit and loss statement should reflect a profit that will support the loan request. Most lenders look for a minimum of 1.2 debt service coverage. If the company has adequate profitability to make distributions to the shareholders, that should be done in the first quarter of the year rather than at year end.
5. STOP signs
STOP using personal credit cards to pay business expenses.
The use of personal credit cards may negatively impact your credit score if the credit used exceeds 35% of the available credit line. And, lenders are not inclined to repay personal debt as a line item in a use of proceeds schedule.
6. STOP signs
STOP signing any major contracts or debt obligations for business expansion until you arrange financing that will cover all intended expenses. Debt on which UCC filings have been placed will make the loan process more difficult.
7. START signs
START using a business credit card for business operating expenses.
Banks are interested in providing merchant services for businesses. You can shop for pricing and terms of these services while you are shopping for a loan. If you are a heavy user of credit cards and other merchant services the bank will have an immediate interest in your business.
Next page- Bank roadmap START/Stop assessments 8 through 12 and Takeaway
About the author
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 16 years: combining business training programs with one-on-one mentoring. Marj is currently a financial advisor for Florida SBDC at FIU. She was Chair of SCORE Miami Dade from 2010 to 2014. She also serves as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has been facilitating workshops under the auspices of Miami Bayside Foundation for the past 3 years. She commenced her career as a real estate investment banker in New York and Miami.She uses these long term relationships to assist her clients in accessing capital. She knows both the process and the people and has assisted in providing financing for hundreds of businesses in Miami Dade.