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So You Need a Business Loan

In the life of nearly every company, there will come a time when financing will be needed to purchase equipment, a building, or maybe acquire a competitor.  This reminds me a bit of being a child – you really want the cookie, but you don’t want to do whatever horrid job Mom or Dad has lined up for you to complete in order to get that treat!  Likewise, you want the loan, but are less than enthralled at jumping through all of the hoops that some crazy banker will require in order to get the financing you need.   Follow the lessons you learned as a child to make that initial meeting with the bank go smoothly – come prepared with the answers to the basic questions:  Who, What, Where, When and How.

WHO – Provide the banker with some background information on your company.  What does the company do?  Who are your customers?  Where are your products or services sold?  If the banker has not worked with you in the past, this information will prove valuable in the underwriting process.

WHAT – What is your financing request?  For what will the loan funds be utilized?  What is the purchase price?  How much of a down payment do you plan to make?  What is your approach to financing?  Do you prefer to pay debt off as quickly as possible or do you prefer to do so more slowly as you may have other financing needs in the next couple of years?  The answers to these questions will help your banker put together a financing proposal that assists in meeting your objectives.

WHERE – Where does the company stand in terms of financial performance?  The bank will typically look for the following information to be provided at a minimum:

  • Last three years of financial statements/tax returns for the company
  • Interim financial statements with Accounts Receivable and Accounts Payable Aging reports
  • Personal Financial Statement (when applicable)
  • Two to three years of personal tax returns (when applicable)

WHEN – When are you looking to buy the equipment or building?  If a new building is being constructed, when will it be started and completed?  If a new piece of equipment is being ordered, when will it be built, delivered and installed?  This information is helpful because the bank may offer an interest only period to ease the burden on cash flow during the period when you may be paying rent on your existing building as well as making loan payments on the construction loan for the new building.

HOW – How will this purchase positively impact the company?  Bankers, like accountants, really love numbers.  If you can provide either projections showing the financial impact that the purchase will have on the company or the difference it would have made historically, that will be helpful as your banker begins underwriting your request.  The bank will be looking to see that there is a benefit from making the purchase: reduced rent, increased margins due to producing product in-house vs. outsourcing, etc.

If possible, provide this information to the banker ahead of time or have it available at the first meeting.  This will enable the banker to quickly determine what types of financing options are available and the best structure(s) to meet your objectives.  Unfortunately, things haven’t changed all of that much since you were a child – you still have to put the “work” in up front in order to receive the reward.  The plus is that reward will hopefully provide years of increased cash flow and profitability for your company – the benefits and satisfaction will last much longer than that cookie.

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