We recently had a Circle of Excellence (our regular informal discussion with high performing partners) discussion about the role of a Chief Financial Officer in a growing business. One of the great questions that came out of that discussion was how to prepare to borrow money from a bank.
I’d like to address that question here from the perspective of an active entrepreneur, bank board member as well as the CFO’s expressed perspective.
Essentially, it all comes down to building a relationship.
The smart business person understands that she may need to borrow money to grow the business, even out cash flow, buy assets, or for some other purpose somewhere in the business’s development. It’s very important, regardless of how you feel about debt, to prepare for contingencies.
The first step in preparing to borrow money is to do it before you need it. Wherever you have your business banking set up go meet a loan officer. Take them to lunch and talk about your business and your plans. Get to know the kinds of business, and the kinds of loans, his bank likes to make. Understand from his perspective what they look for.
What you’ll hear in that conversation is that they like to loan money to people who are well organized, know how to run their business and have a plan and solid ability to pay back the money. For new business people the most important thing may be an excellent credit score.
If you haven’t had a good set of financial statements prepared for your business and a comprehensive and a well prepared personal financial statement, get your CPA to assist you in putting them together. What is on there is important, but so is the presentation of the information. Ask your new banker friend what he thinks of your business and your financials. Are there things you could do to improve them? Are there areas he thinks he could assist that might speed your growth or boost your cash flow?
Even if you don’t need money now, consider asking for a small line of credit. These are profitable business for a bank and offer an excellent opportunity for you to begin borrowing and repaying financing. The point is, to get started well in advance of when you might really need to borrow. Perhaps you never will, but the wise business person is prepared.
Remember that your banker is a business person too. He needs to make loans to generate income and so has a genuine interest in loaning you money. He would also be grateful for referrals and is also able to give you referrals.
If you haven’t already established a lending relationship for your business, resolve to do that during the first quarter of the year. From a financial statement perspective, it’s a logical time to do it, and it is a great idea to go into the new year with new capabilities!
http://oaaonline.net/wp-content/uploads/2016/02/logo-blog-1.png00OAA Adminhttp://oaaonline.net/wp-content/uploads/2016/02/logo-blog-1.pngOAA Admin2018-11-20 14:39:472018-11-13 16:07:03Banking on the Future