What Bankers Want to Know before Granting a Small Business Loan
1990; American Institute of Certified Public Accountants; Volume: 169; Issue: 4 Linguagem: Inglês
ISSN
0021-8448
Autores Tópico(s)Microfinance and Financial Inclusion
ResumoWHAT BANKERS WANT TO KNOW BEFORE GRANTING A SMALL BUSINESS LOAN CPAs can help an emerging company secure bank financing by gathering data to support a written loan proposal. The profound changes that have marked the banking industry during the past several years have been a mixed blessing small companies. On the positive side, small business loans have become more available an increasing number of community banks--the traditional source of small business financing--have been absorbed into regional or urban banks. These larger institutions have been courting small and midsized companies aggressively. Still, the widespread demise of the community bank has forced many smaller companies to rethink their banking relationships. Larger banking institutions are, a rule, much less personal and informal than their community bank counterparts. Because assignments branch officers at large banking institutions change rapidly, the once common long-term relationship that often existed between small business owner and banker is disappearing rapidly. HOW TO KEEP A BANKER INFORMED The less a banker knows about a company, the more information the owner must supply to present a convincing case receiving a loan. For that reason, the best time a small business owner to get to know his or her banker is before a loan is needed. He should treat his banker much he does his important customers and suppliers. He could, instance, take the banker on a tour of the company's facilities. He should keep the banker routinely informed of progress, through personal contacts and interim reports in which both problems and strengths are discussed. Once the banker becomes familiar with the company, he can understand its needs. Then it is easier the owner to explain the reasons a loan request. Most important, the direct contact will enable the banker to be knowledgeable when he presents arguments the loan to the loan committee. Even if the banker is transferred, the relationship can still pay dividends. As one regional banker noted, keep extensive files and notes on all my contacts with prospective customers. If I move on, the file stays here my successor to use. PREPARE A LOAN PROPOSAL When a loan is needed, the most effective way to justify it is through a written loan proposal, a device used routinely by large corporations. A thoughtful loan proposal prepared in cooperation with a CPA will present the business owner's case at the first loan interview. It will document how the funds will be used and, more important, how and why the plan repayment will work. WHAT THE BANKER NEEDS TO KNOW FIRST There are five questions a banker wants answered as soon the customer walks in the door, one loan officer put it. These should be answered in the loan request, which is always the first section of a loan proposal. They are: 1. How much? Tell precisely how much money is needed. A rounded figure or a range suggests the owner has not done enough homework. 2. What purpose? Again, the banker expects a specific, comprehensive answer. A vague description, such for general corporate purposes will not suffice. 3. How long? How quickly does the company intend to pay back the funds? 4. How will the company repay? Be prepared to supply documentation. If, in most cases, repayment will be from cash flow, the CPA should provide either cash flow or receipts and disbursements projections at least the life of the loan. 5. What if something goes wrong? Here, the banker is looking an ace in the hole--an emergency plan if the loan doesn't work out. It could be a plan to sell an asset, borrow elsewhere or bring in a new investor. Whatever the solution, a sound emergency plan is an important ingredient of any loan proposal. ADDITIONAL LOAN PROPOSAL INGREDIENTS Although the loan request is by far the most important section of the loan proposal, it must be supported by background information that will give the loan officer enough ammunition to justify the loan before the loan committee. …
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