For many small businesses, access to financing is crucial for long-term success. The right financial partner can be an invaluable advocate and advisor for your business, but anyone who’s run a business knows that finding that person can be a daunting task. Basic knowledge of what banks are looking for from business owners—and what you should be looking for from your banking partner—can help. Here’s what to know.
What banks want
1. Think of it as a financial presentation. Be prepared. Have three years of financial statements and/or tax returns, your most recent interim statement with a same-period-prior-year comparison and a guarantor personal financial statement with two years of tax returns. If you’re looking for a line of credit, plan to provide accounts receivable and accounts payable agings and an inventory listing. If you or another owner has contingent liabilities, have detailed information ready for the bank to understand those obligations.
2. Cash flow, collateral and sufficient capital are a must. Banks need to see a clear source of cash flow from your primary operation before they can approve a bank loan. Collateral is required as a secondary source of repayment in the event your primary operation fails. It’s important to know that if collateral is a challenge, government guaranteed programs could help provide collateral to support your loan request. The capital level required differs depending on industry and company size.
3. Your company’s history matters. Help your potential bank partner understand the big picture for your company by being ready to answer questions such as how long you’ve been in business, how you got started and who the key players in your company are. Be prepared to share your challenges, opportunities and industry positioning, as well as your strategy for the immediate future.
4. Proof of experienced management. Demonstrating that you have an experienced leadership team managing your company is an important part of sharing your story and instilling confidence in a financial partner. Be ready to share more about your team and how you plan and run your business successfully.
• Vision and direction: Highlight the team or individual focused on watching market conditions and developing solutions to help your company thrive. Share what they bring to your company and the experience that’s important to your success.
• Financial accuracy: Talk about the accounting program you use. Do you have a CFO, controller or bookkeeper? Be ready to share their backgrounds and the value they add to the accuracy of your finances.
• Operations: Who’s focused on making sure the day-to-day operations of your company are successful? What’s their background?
5. Be transparent. Banks look for leadership teams that value transparency, honesty and integrity. Think about how you incorporate those qualities into your company—and look for shared values in your banker and financial institution. When you treat your banker as a partner and trusted advisor, he or she can be your flexible, effective advocate. Don’t surprise your banker! The earlier a bank is informed of hard times, the more likely it can help.
What to seek in a bank
1. Customer relationship focus. In today’s constantly changing business environment, businesses need a financial partner, a company with the culture and commitment to understanding your business and tailoring its services to meet specific needs.
2. Strength of the bank. Can it address your financial services needs today? Does it have the size and scale to be able to continue servicing your growing needs in the future? Your prospective banker should inform you of his or her bank’s strength and suite of capabilities—as well as whether it’s well capitalized and has sufficient liquidity.
3. Lender experience. Interview your lender to make sure you’re selecting a trusted advisor with skills to deliver value to your company through demonstrated expertise, financial services knowledge and ability to understand your business.
4. Will the bank add value to your company? Banks can add tremendous value to your company beyond lending. Does it have options for leveraging growth, minimizing risk, creating cash flow efficiencies, maximizing return on investment cash and caring for estate planning and retirement? Is it invested in your local community, with a track record of giving back?
5. What are the bank’s strategic plans? Ask who makes the bank’s credit decisions and whether you have access to them. Is your financial institution committed to lending to your industry or company size long term?
Taking the time to find the right banking partner can be a pivotal step for a growing business with ramifications far beyond financial. The exercise of gathering your financial information and preparing to share your company’s story can refocus and inspire you and your team—while also bringing an invaluable partner to the table.
Paul Yeomans is a VP, commercial banking manager with Umpqua Bank. He manages the Sonoma County Commercial Banking Center and has more than 25 years of lending experience. You can contact Paul at paulyeomans@umpquabank.com or (707) 236-1370..
