| Banking - Business Loan Application | | | | who prepared the information package. |
| Operating Lines of Credit and Letters of Credit | | | | " Financial Statements for the past three years |
| You are probably wondering what a series on | | | | " Pro forma financial statement for the year to date |
| business banking essentials is doing on a natural health | | | | " Cashflow projections for the current year |
| website. | | | | " List of aged accounts receivable |
| Well, stress caused by financial worries will eventually | | | | " List of aged accounts payable |
| adversely affect your health. Many business owners | | | | " Summary of inventory |
| operate under constant financial pressure, and this | | | | From the above documents, the bank will ascertain |
| series on commercial banking and commercial finance | | | | whether your business was profitable in the past, and |
| will arm them with the knowledge that they need to | | | | whether it appears to be profitable this year. |
| deal confidently with diverse business situations, and | | | | The cashflow projections will show how high the |
| with their bank managers. Knowledge is comforting, it | | | | financial involvement will peak at, and how well the |
| is the fear of the unknown that is stressful. | | | | loan will be collateralized at any given time. |
| How can I help you? I obtained my Chartered | | | | The accounts receivable list will disclose the quality of |
| Accountant designation (I'm retired now) in Australia. | | | | the customers and whether a significant percentage |
| Upon moving to Canada, I worked for a wholly | | | | of them is delinquent. |
| owned Canadian subsidiary of an American bank. | | | | The accounts payable list will reveal whether your |
| Over time, I rose to become the Senior | | | | business is up-to-date with its payments to suppliers. |
| Vice-President responsible for the commercial finance | | | | The inventory summary will show the nature of the |
| division. This division granted flexible operating lines of | | | | inventory and give an indication of whether it can be |
| credit, which included letters of credit for importers. | | | | sold readily. |
| In this career, I encountered numerous different | | | | In addition to examining the above documentation in |
| types of businesses including trading, manufacturing | | | | detail, be aware that a credit check will be done on |
| and importing. | | | | the business to ascertain if there is any outstanding |
| This is not intended to be a detailed accounting or | | | | litigation, and as to its creditworthiness. |
| banking course. I have put together the essential | | | | Knowing all this, be sure to have satisfactory |
| information you need in order to give yourself the | | | | explanations for any aspects that may appear |
| best chance of succeeding in your business. I shall tell | | | | detrimental to the bank. |
| you what your bank manager would like to hear | | | | It is important to keep in mind that the ideal |
| from you at your meetings. I shall tell you the early | | | | customer for an operating line of credit, as far as the |
| warning signs that your business needs positive | | | | bank is concerned, is one who: |
| action. | | | | " Is profitable |
| These comments are not for retail business; they | | | | " Needs the credit to finance profitable growth |
| apply to wholesalers, importers and manufacturers. | | | | " Does not require too high a loan/equity ratio |
| To cover the vast amount of banking information, | | | | " Has adequate collateral to cover the loan at all |
| even in thumbnail format, I shall break it down into | | | | times |
| various segments. Some will apply to your business, | | | | " Has collateral that can be liquidated easily |
| others may not. I am intentionally phrasing the | | | | " Has excellent credit rating |
| segments in very simple layman's terms. I would | | | | Your strategy? When making the loan application: |
| advise you to discuss my advice with your | | | | " stress the good value of the assets that support |
| accountant, or even your banker, before you decide | | | | the equity of the business. |
| to act on it. | | | | " Point out that the inventory is current, or can easily |
| This first segment deals with the initial loan application. | | | | be sold. |
| It is assumed that you are applying for an operating | | | | " Explain that your accounts receivable are up-to-date |
| line of credit, which may, or may not, include letters | | | | and that delinquent receivables have been provided |
| of credit. The actual loan within the line of credit will | | | | for. |
| fluctuate at different times, depending on the | | | | " If you have unencumbered fixed assets, point out |
| cashflow, but the bank will put an upper limit which | | | | that there is additional collateral for the bank in them. |
| you cannot exceed without special authorization. The | | | | " Advise the bank that you have adequate fire |
| limit of the operating line of credit is determined by | | | | insurance to protect the assets, and personal life |
| the bank after evaluating various aspects of your | | | | insurance that could be used to protect the bank, if |
| business, including your equity in it. | | | | necessary. |
| There is certain basic information that the financial | | | | " Recognise that the banker looks to collateral to |
| institution requires in order to make the decision to | | | | repay the loan if the business fails. The banker is not |
| finance your business. You must come to the | | | | really interested in intangible assets, such as goodwill, |
| appointment with the bank armed with this | | | | even though they could be very valuable. |
| information, ideally accompanied by your accountant | | | | |