Working with Your Banker and Establishing Credit
Working with Your Banker and Establishing CreditBanking Relationships as Taught by an Atlanta CPA
For a rapidly growing business or any who are going to have short or long term financing needs, it is critical for an entrepreneur to consistently stay in touch with their banker. An owner needs to stay in touch with their CPA first and then develop a relationship with a banker. This is critical to a business owner’s success. Many times I have personally witnessed a business owner rushing into a bank’s office seeking cash to cover the next day’s or week’s payroll. Although this is an extremely valid need, as all would agree, the act of responding on an ad-hoc or emergency basis sends a message to the banker and all concerned.As an Atlanta CPA for decades we have helped many metro Atlanta and Gwinnett entrepreneurs find and work with a banker and a bank who is best suited to assist them with their business needs. Upcoming cash needs should not be a surprise as the key managers and owners should be well versed in upcoming cash needs. When you are meeting the needs of a rapidly growing company, you are often faced with the cash needs to finance new receivables, an expanding inventory and the increased needs of personnel cost all concurrently. Thus, it is critical to constantly stay abreast of current financial operations and their intersection of financing needs and specifically how they impact the company’s cash balances.
To maintain the best relationship with your banker as possible, you will want to be sure to continually contact your banker keeping them informed of business decisions and trends. You will want to forward to your banker, several times a year, the company’s current financials, projections for the upcoming periods and a narrative detailing past operations and plans for future operations. In doing so you will both have a clearer view of all of the internal aspects of your business and you will also build a lender’s confidence in your ability to both manage your business as well as to maximize profits and opportunities as they occur.
If you are on the verge of exponentially increasing the size of your business, it is an even more critical time to keep your lender informed of upcoming surges in cash needs. A well-informed and communicative business owner will always be given extra consideration when business financial issues arise. Whether your cash needs are well known in advance or sudden, a banker who is well versed in your business will most always look more favorably on your business than those who are not.
Any solid lending institution of any type will look at many variables when reviewing whether or not to extend you and your business credit. Lending institutions have one major concern when lending money, your repayment. As an objective third party, a lender will evaluate your ability to repay based upon the cumulative analysis of several criteria including:
Cash Flow – This is a measure of your ability to repay the original loan amount/principal along with the stated interest. This will be the function of your past track record, the business’s potential for continued success, its business plan, the predictability of anticipated future operations and the overall business climate in which the company operates.
Collateral – Lenders fervent desire for all borrowers is that all loans are to be repaid as agreed. Although most loans will require collateral to secure a loan, as not every loan is successful, it is never the goal, when a loan is originated, for the loan to be foreclosed and the collateral seized. Collateral serves two purposes with it primary goal being to fulfill the payment terms previously agreed to. Secondarily, collateral also serves to provide the borrower with an additional incentive to fully repay the originating promissory note as agreed to preclude the loss of not only the original capital but also the underlying security interest. To this end, a lender will also typically require a borrower also invest in the original purchase by placing their own “down payment” which will vary dramatically depending on the nature of the loan, its business viability, the estimated mobility of full repayment.
Character – All loans you receive have one major component, which is consistent regardless of its type. Although a bank does lend based upon a myriad of variables its primary note of importance is you. If you have the best business, top ideas and an incredible business model, a lender will still pay close attention to you. In each and every communication you have with your lender, whether it be in person or in written word, your banker sill be consistently making mental notes about you, your integrity and the soundness of your reasoning. I have often found it most advantageous to under commit and over perform rather than vice versa. By constantly letting your actions meet or exceed the expectations your words establish, you will establish positive influences and vibes your lender will not ignore.
Credit – Your personal, as well as your business credit reflects your past history and track record of your past ability and willingness to fulfill prior financial obligations. Your credit score is one of the key criteria lending institutions utilize to review specific details as to how past financial obligations were handled. Thus, keeping your vendors, credit cards, Dun & Bradstreet ratings, etc current are integral components of keeping a good credit score. If you are well armed with a good credit score, you will be given more favorable treatment in both the receipt of a loan and the amount of interest charged. Accordingly, your credit score can impact whether or not you get a loan as well as potentially cost you thousands of dollars if your credit score is not as good as it could be.
Courting your banker is a critical component of both selecting a bank to work with as well as maintaining a good rapport for when you really need them the most. We work with many well-qualified banks and professionals seeking to bring your prompt and competitive financial answers for your business. Calling us might be the best thing you ever do.