by Anne Moore Odell
In these challenging economic times, it can be difficult for businesses to know where to turn for capital financing opportunities. The answer might be right around the corner at your local community bank.
”It is going to be the small businesses that drive the economy and new jobs, not the government,” says Mike Iverson, CPA and principal of Trillium Financial. “People need to talk to their bankers now. Your bank needs to get an understanding of your current situation. Don’t wait until 30 days before your line of credit comes due.”
“Banks are not charitable organizations, but are in business to make money,” says Phyllis Murdock, Senior Vice President of Private Entrepreneurial Banking at the Buckhead Community Bank. The bank serves businesses around metro Atlanta. She elaborates, “We will consider the traditional five C’s of Credit:
- Capacity to repay
- Capital invested in the business
- The Collateral or ‘guarantees’ that provide supplemental forms of repayment
- The Conditions surrounding the loan
- Character of the borrower.”
To get capital funding from banks, businesses must demonstrate their ability to repay loans. Banks look carefully at cash flow from the business and the timing of the repayment. Says Murdock, “We’ll take a look at past credit relationships, both individual and commercial, and payment history if this is a renewing line. There may be contingent forms of repayment—these will come into play as well.”
In response to downward economic trends, banks are looking at all lines of credit and requests for capital with greater scrutiny, including close examination of another of the five “C”s of credit: Collateral. Equipment, buildings, accounts receivable and in some cases inventory may all be sold by the bank for cash. If accounts receivables are to be used, banks might request an “aging receivables” report and monitor the accounts receivables during the life of the line of credit. Both business and personal assets of owners are considered.
Murdock explains, “The money that the applicant has personally invested in the business becomes an indication of how much the principals have at risk should the business fail. This is the capital injection and we believe that the borrower who has significant personal investment in the business is more likely to do everything in his power to make the business successful.”
“It is very important to talk to your bank regularly and them updated on any significant changes to your business — good or bad,” says Iverson. Murdock adds, “Local banks understand the economic climate of the community that they serve and have a willingness to invest in that community. Frequently bankers are invested in the community and have a true understanding of what is occurring in the town.”
Current conditions have made banks very cautious, lending only to clients with whom they have had previous relationships. Stay in touch with your banker and other financing partners. It can make the difference in getting your loan renewed.
Need help getting your financials in order to approach your bank? Contact Trillium today!