How Can Businesses Best Work with Banks?
Meet Pam Mosher, assistant vice president and business banker at Enterprise Bank & Trust. Pam is passionate about helping and educating her Kansas City business clients. We asked her to share tips on how small businesses can best work with banks, now and for the future. Here’s what she had to say.
There sometimes is a misconception that banks have money to lend to everyone, right?
What some small business owners don’t realize is that banks go through a rigorous vetting process before any money is handed over. They especially like to look at each business’s planning, e.g. business plans, five year plans, cash flow plans—the more planning the better.
Okay, maybe we don’t need that many plans.
However, with business owners’ busy schedules and long work hours, we bankers commonly get the answer, “Planning? What planning? I started to wonder, is planning a lost art? Then about three weeks ago my phone rang.
One of my clients called to inform me her husband, a business partner, and she were thinking of purchasing a building for their two separate businesses. They wanted to discuss how they can plan now to purchase a building in three years.
Wait, THREE years?!? Instantly, I wanted to reach out of the phone and hug her!
Advanced planning for lending is the best case scenario for businesses and bankers. It really turns into a win-win situation for everyone involved.
Too often we don’t see business owners’ planning on the front end. I can’t blame them. Let’s be honest: running a business is difficult, especially with increasing costs for products, labor and time.
That is exactly where your banker can help. It is just as important to work with your banker as much as you work with your CPA. Having a relationship with your banker is important, so you can sit down and discuss the short-term and long-term goals you have for your business. Then you can let the planning begin.
Below is a list of five things we often see from business owners who want to borrow money and have not planned. Some of these can be easily avoided by simply sitting down and doing a little planning with your banker. Your banker can offer some solutions to help you overcome any of these obstacles.
Too much personal debt
Bankers look at each person’s finances with a global lens. If your personal finances aren’t in check, then it can reflect negatively when applying for a business loan.
Low personal credit scores.
Your credit score is a look into your history. If you are making good credit decisions on the personal side, it’s a safe bet that you are making good decisions on the business side.
Insufficient cash injection.
Cash is king! Make sure you have sufficient funds and equity to invest back in the business.
Lack of collateral.
If the business doesn’t have enough collateral, using personal collateral to back a loan proves to banks that business owners stand behind their plan and are invested in the businesses success.
Don’t be afraid to show profits.
If you need a bank loan, you need to show profits on your tax returns – do not take too much money out of your business. If you do you’ll reduce your taxes, but you’ll also reduce your chances of getting a loan. How will the bank get repaid if there isn’t anything left?
I hope my tips have inspired you all to start planning for the future! Thoughts and options are my own. Follow me on Twitter @MosherPam or drop me an email at email@example.com if you any questions!
Flickr Image by GotCredit