- You need to pay Uncle Sam, aka, business needs to show a profit.
- Personal credit is very important.
- Cash flow, credit relationship with the bank (prospect or customer), you have a much higher chance of getting approved if you are a current customer.
- Collateral – you need to put some skin in the game.
How to Get Bank Financing For Your Business
With the economy improving, and businesses growing again, cash flow can become an issue. To grow your business, cash flow is important; however increasing cash flow is easier said than done. To find out what it takes to get financing in this current economic climate, I spoke with a local banker. Here’s what he had to say: What do banks look for in financial statements? Prior to the great recession, bankers looked at financial statements to see what collateral the client had. Since the great recession, they look at the balance sheet to see what debt there is against the company. When looking at the P&L, year over year trends are extremely important. For those companies in seasonal businesses, bankers will specifically hone in on specific time periods. The good news is, they will take into account “one off” expenses, that they will add back to the P&L. One off expenses could include moving or remodeling expenses. When looking at the balance sheet, tangible net worth is also a huge factor. When looking to increase my line of credit, what do you suggest? To increase cash flow, you have to cash flow… Go figure. Cash is king, and year over year growth in revenue is key. Banks are also still looking for collateral. If you are looking for a 250K line, the bank wants to see you that you have 250K in accounts receivable, inventory or equipment for instance. Collateral is not black and white. You must personally guarantee the money and show good faith. In CA banks can either use your business or personal collateral, not both. Typically banks won’t use personal assets for qualifying. You will always have to put a personal guarantee, but they won’t lien any personal assets. Main factors that the bank looks at: