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