Securing a Conventional Business Loan

Transcription

1 Passaic County Department of Economic Development Securing a Conventional Business Loan October 16, 2013

2 Our Mission To Pull Back the Curtain We want to show you how we operate and what we look for

3 Common Misconceptions About the Commercial Loan Process Investors Bank

4 Investors Bank Misconception #1 The Bank only wants to do very large commercial deals why would they bother with my request? Banks see lending to small and medium-sized companies as the backbone of their business, and also as an opportunity for growth. Most Banks, if not all, are dedicated to employing groups of Bankers with histories of lending to small and medium sized businesses.

5 Investors Bank Misconception #2 There is a mysterious person within the Bank that no one sees. He or She has the power to approve or decline your loan request without speaking with you. Most Banks now have groups of bankers whose sole job is to sit with you and walk you through the loan process, making sure that you know what is going on and why.

6 Investors Bank Misconception #3 Applying for a Commercial Loan is Too Time Consuming If you know what information to provide and can discuss your business with your banker, being approved for a loan could possibly take a couple of days.

7 Investors Bank Getting A Loan Approved Can Be Quick & Easy. If you know what to provide

8 Investors Bank What Do Banks Need to Review My Loan Request? Some smaller details will vary by Bank, but there are two main things that a Bank looks for when reviewing a loan request: # 1 Financials for your business and you # 2 Your Story

9 Your Financials: What We Need For Your Business: Last 3 years of financials Either tax returns or CPA-prepared financial Statements For non-real estate related loan requests: Under $500,000 Tax Returns $500,000 to $1,000,000 Compilation $1,000,000 and up Review Statement $ 5,000,000 and up Audited Statement Investors Bank

10 Your Financials: What We Need Other Items Needed From Your Business (Continued): For a Line of Credit: Accounts Receivable and Payable Agings For a Term Loan: A list of items (equipment/improvements) to be purchased Investors Bank

11 Your Financials: What We Need Items Needed From You: Last 3 years of Federal Tax Returns A Personal Financial Statement This is where you list your income and expenses, as well as all of the assets you own, against all of the loans you have outstanding. This will also (most likely) allow the Bank to run a credit report on you. Investors Bank

12 We don t just look at the numbers. We want to hear a story YOUR story

13 We Want you to Brag because to us: Your Financials Your Story

14 Investors Bank Why do we want to hear YOUR story? Here are some important things that your financials don t tell us: How long you have been operating How many people you employ How many customers you have What your relationships with your customers & suppliers are like

15 Investors Bank Why do we want to hear YOUR story? Here are some more important things that your financials don t tell us: How you were able to grow your business to what it is today How you were able to manage your company through either rapid growth or a recession Why you need the new or increased loan

16 So now that we have your financials and we ve heard your story, Here s What We Look For: Investors Bank

17 What does a Bank look for? We will mainly look for the: Cash Flow Collateral Character / Credit 3 C s Investors Bank

18 Investors Bank The First C Cash Flow The Most Important C Without cash flow, it would be difficult to get a loan approved.

19 The First C Cash Flow What does a Bank look for in cash flow? We mainly look for debt service coverage This is a ratio that shows how many times your cash flow covers your business s annual debt payments. Banks typically look for cash flow to cover debt payments by 1.2 to 1.3 times. If you earned $100 in cash flow, you could afford to pay back $77 in annual debt payments ($100 / $77 = 1.3x) Investors Bank

20 Investors Bank The Second C Collateral The Bank will ask for collateral, so in the event that a business could not make its payments, the Bank would have a secondary source of repayment

21 The Second C Collateral What does a Bank typically look for in collateral? That depends on your type of request If you re requesting a line of credit: We look for sufficient accounts receivable and inventory to cover the size of the loan. If you re requesting a term loan: We look for sufficient amounts of fixed assets to cover the size of the loan. If you re requesting a mortgage: We look for sufficient amounts of real estate to cover the size of the loan Investors Bank

22 Investors Bank The Third C Character / Credit You could have excellent cash flow and sufficient collateral, but with bad credit, you may still not be approved for a loan.

23 The Third C Credit/Character What does a Bank look for in credit/character? We mainly look for a good credit score from the person that owns and runs the business. - Depending on the Bank, a good credit score could be We also look for no prior collections - We look for no bankruptcies, or tax liens Investors Bank

24 Investors Bank So now that you know what we look for How do we start?

25 How Do We Start? There are is one individual/company that can provide the largest amount of help YOUR ACCOUNTANT Investors Bank

26 Your Accountant Maintaining a well-known & reputable accounting firm provides a bank with comfort. Reputable firms consistently represent their client s financials accurately and thoroughly. While hiring a tax preparation firm to complete your taxes is a costsaving measure, it is wise to note that a well-run accounting firm can actually save you money through their knowledge of tax incentives and financial consulting. Investors Bank

27 Business Plan Your Accountant Can Also aid you in creating a Business Plan A Business Plan will help you manage your planned growth accordingly It will also help you understand your competition, and how you can outperform them. It is also a valuable tool for a Bank to review when understanding your loan request. Investors Bank

28 Investors Bank So now that you know what to provide how to provide it and what we look for

29 What should we expect? You should expect: A Banker to explain each step of the process in detail A Bank to provide you with an estimated timeframe for this process, from signing a loan application to signing a legal loan document to receive your funding. A Banker to work personally with you throughout this loan process Investors Bank

30 REMEMBER a Bank s performance is tied to how its loans are being repaid that means we have a vested interest in making sure that your company succeeds.

31 Thank you.