Be Prepared When Your Company Applies For A Commercial Loan
May 17, 2009
Two of my clients are in need of a new banking relationship as well as a line of credit. One client needs a modest line of $100,000, the second $1,000,000. They are both seeking a bank and banker who desires to become a trusted advisor to their organizations. Both have concluded that the large money center banks no longer want to conduct business with small to mid-sized business.
In order to prepare my clients for the process, the Principals and I met so that I could provide some insight about the process, especially given the conservative approach that banks are exhibiting. I instructed them that the following must be prepared based on each banks requirements:
- 1. An executed loan application.
- 2. A full set of financial statements (Balance Sheet, Statement of Operations and Cash Flow Statement) for two to three prior fiscal years.
- 3. US Corporation Income Tax Returns for the prior two to three fiscal years.
- 4. US Individual Income Tax Returns for all principals for the same period of time.
- 5. Current financial statements.
We also discussed upcoming meetings between Bankers and Principals. I advised my clients that during these meetings to stay focused, be honest (to questions), succinct (with their responses) and not to provide any information that is requested. The risk of making a misstatement that the Banker does not want to hear can be overwhelming. I also advised them to allow me to represent the organization because I have in excess of 25 years dealing with banks, understanding how bankers think, negotiated loans and credit lines and forming relationships between the bank and the companies that I've been employed by.
Both clients are overwhelmed by the process. I believe that they intuitively know that banks are being very careful because their management has turned conservative. They also understand that local and regional banks are conducting business and want to form new relationships with businesses such as my clients.
In discussing business with my banking contacts, all have confirmed that their organizations are willing and able to make loans, form new relationships, and provide excellent service. They have also confirmed that businesses need to have all their "ducks in a row" because Bank underwriters are being quite careful with their approvals. This is not to say that companies whose financials are not the best will be denied credit, in fact many bankers that I have spoken to truly understand that companies had difficulties in 2008. Banks are willing to take this into consideration as long as current financial conditions have changed.
I've concluded that Banks want to understand a new business history, operations, revenue stream, and the Owners. They also want to talk to and deal with a financial expert in order to expedite and complete the process.
