Geting that Loan
By: Linda Hanson

Getting a loan can seem like a daunting, exhausting process -much like finding and purchasing a home. As with choosing a home, you want to select a bank with a solid foundation. Evaluate banks’ customer testimonials, experience and expertise. And, as you hope with a home, your bank should grow with you. Specifically, your commercial bank should grow with your business and support its long-term plan.

The following are the key things to keep in mind regarding securing financing for your business.

Be Prepared. This is the most important step. Before meeting with your banker, prepare a package that includes a written request outlining your proposal for financing, historical financials of your business, company projections, tax returns, personal financials and any other relevant information. Remember, first impressions have an immediate effect, so you want to make sure the first impression a lender has of you and your business is positive. You expect your banker to be knowledgeable and organized, and you also have that same responsibility on your end.

Understand your Cash Flow. Know your numbers; work with your accountant to have a firm grasp on your company’s cash flow. Bankers don’t expect things to always go smoothly in the business world, but be sure you are able to explain any bumps in the road. Review trends in your business and industry to have a better understanding of cash flow. Bankers will evaluate your cash flow situation as your capacity for repayment.

Consider the Payback. Is your request reasonable for how you propose to pay back a loan? The time frame you’ve set for payback should make sense given the life of the asset. For example, there would be a longer payback period for a permanent asset, such as real estate, than for a piece of machinery that may only last 10 years.

Evaluate Historic Cash Flow. Collateral is important--but it should be considered a secondary source of repayment, so the better you can explain it, the easier it is for your banker to accomodate your request. If collateral is involved, make sure you know its market value and useful life. The advance rate that bankers use depends on the liquidity of the asset. For instance, marketable securities have a higher advance rate than equipment because the collateral is easier to sell.

Evaluate Your Capital Adequacy. Capital is important because it’s a measurement of how much you’ve invested in the business. Be realistic about how much you expect to borrow considering how much capital is in the business.

Give References. References you provide a lender should be able to speak to your character and integrity as well as your business acumen. Character is still an important consideration for lenders today. Good sources to provide could be your accountant, attorney or investment adviser. Also, look for or create situations where you can be introduced to a banker through a mutual contact. This can often be a good opportunity for you to become better acquainted with a potential lender.

Be Flexible. When discussing financing with your lender, be open to the ideas and willing to at least listen--even if you don’t initially agree. And don’t give up or get discouraged. It’s not unusual to be turned down at one bank and receive financing at the next one.

Linda Hanson is president of the Kansas City region of Enterprise Bank & Trust. She can be reached at (913) 663-5525 or lhanson@enterprisebank.com.

Article Source: http://www.flourishmagazine.com