What should businesses be doing to get their bank loan/credit line paperwork in order?
The best way for a borrower to impress a banker is to be prepared. Assemble a detailed application package, which should include three years of financial statements and tax returns and, depending on the time of the year, financial projections to finish up the present year. It’s also helpful to furnish two years of financial projections or more.
Plan to supply personal financial statements of owners with supporting documentation, and create a summary of the request and how the loan/credit line will be applied to help grow the business and make it more profitable.
Ideally, this information should be organized into a single package, as opposed to bringing a banker financial statements and promising the rest of the information ‘next time,’ or saying, ‘I have tax returns, what else do you need?’ Anticipate what financial information the bank will ask for and bring all information to the table at once.
This helps make the credit application process or renewal process much smoother.
What common mistakes do business owners make when applying for a loan/credit line?
Don’t take the process lightly, and be realistic about how you will manage the downside. In today’s world, cash flow and credit-worthiness are two keys to securing a loan/credit line, and you have to prove that you can support and service the debt.
If you have historical financial statements and projected financial statements that show you can’t service the level of debt you are requesting, that makes it difficult for a banker to get an approval. Even if you have a history of always making payments on time, if you cannot provide financial support and documentation to justify a credit decision, a bank will have a tough time extending that opportunity in today’s market.
What else should business owners know before trying to secure a large credit line or other large-scale financing?
Banks are looking to develop strong relationships with their business clients because it’s important for us to be much more than a commodity supplier of financing. At the same time, businesses must understand that banks are taking on risk by approving loans/credit lines, and borrowers have a responsibility to service their debt. That’s why business owners need to communicate openly with their bankers and share both good news and bad.
Bankers are trusted advisers who can provide business tools and referrals to other professionals who can assist borrowers if they experience tough times. Both parties have a vested interest in borrowers’ success: Businesses want to grow and profit; and banks want their customers to reach their goals and fulfill their financial promises.
Don Pilmer is executive vice president at Old Second National Bank in Aurora, Ill. Reach him at (630) 844-8750 or [email protected].
