Recently while talking business with a banker, we discussed three items that could help people looking for help presenting their financial information to the bank. These items can help you organize what you need when seeking approval from the bank’s loan committee:
Cash Flow – Your financial statements and tax returns over the last three years are what the bank needs first. The loan committee and loan officer usually have questions after reviewing these documents, so it’s important for you to know your company’s numbers well. If you can’t explain and understand your numbers, you may not come across as having the credibility they’re looking for.
Cash flow is really about where you have been and what your past patterns are. If you’re a startup business without financial statements or tax returns, the next item is very important for you because there is no prior history.
Projections – Projections are about what your future will look like, usually consisting of three forms: conservative, business as usual, and optimistic. If you are buying a business, they’ll have you take the business’ prior year tax returns and financials and update them based on the new dynamics. For example, one business owner looking at projections isn’t going to have the rent associated with the old business, and some other expenses the prior business had will drop off. A bank will want you to project your company’s sales, profit, and cash flow.
Executive Summary – This is a list of key assumptions and an overview of the business plan. An important note is that an Executive Summary is meant to be short – not a thesis! Getting the key assumptions for profitability and cash flow to land where projected is the art of making an executive summary.
An executive summary may consist of any of the following parts:
- Borrowers & Industry Assessment
- Loan Purpose
- Financial Ratio Analysis
- Cash Flow Analysis
- Collateral Analysis
- Guarantor Analysis
- Transaction Summary
This is an actual list from a loan officer’s executive summary to their loan committee outlining a deal the bank was looking at. Keep in mind that different banks have different criteria, items they’re looking for, and appetites for risk, so these are things to consider as you put together yours.
When it comes to these three items, make sure you receive monthly financials and have your taxes up to date. Once you have your vision streamlined into goals, your executive summary will be much easier to write.
Learning these skill sets, having these systems in place, and being able to put your financial goals into words on paper can be easier said than done. For help with receiving bank financing and providing the bank what they need to consider you, please contact us for a strategy session.
In addition, to learn more about receiving financing from a bank and being bankable, claim your free online course Financing Essentials with coupon code ROCKNROLL! To show you A to Z what you need to receive a loan from a bank!