BUSINESS LENDERS
Meeting Your Business Lender
Six Red Flags To Avoid
Few things can make a CEO’ s heart pound faster than a visit to the bank. Yet, every successful businessperson has been in the hot seat. Whether asking for an extension on an operating line of credit, taking on equipment financing, or applying for startup funds, here are some tips to get you through the meeting with flying colors.
RED FLAG # 1: LACK OF FINANCIALS Slowness or unwillingness to provide financial statements is a warning sign to lenders. Most lenders have experienced situations where a business delayed delivery of financials because of something undesirable in the documents. And often there is no real need to delay. There is very little that a seasoned lender hasn’ t seen before. There is even less that a seasoned lender hasn’ t worked through so that the business could still secure financing. The best policy is to be upfront and honest from the start.
In most cases, in order to make a decision, your lender will be required to review your business’ s financial statements. Keep in mind that this requirement will not just be the last month’ s statement, but likely the last year or two of statements, and in some cases more.
RED FLAG # 2: PERSONAL CREDIT REPORT For small businesses, the owner’ s personal credit report is as important, if not more so, than the integrity of the business entity itself. Know what is on your report and be prepared to explain anything that might be questioned. Simple things that you can do to make your report more attractive include canceling credit cards you do not use and paying bills in full.
RED FLAG # 3: HISTORY OF LATE PAYMENTS You may not be keeping track, but your creditors are. Items that are 90, 60, or even as little as 30 days past due are reported to the credit bureaus and will be part of your credit report. Lenders with whom you are seeking to establish new lines of credit will have access to this, and they will be looking.
RED FLAG # 4: NONEXISTENT OR INCOMPLETE BUSINESS PLAN The business plan is the staple of the business. It is what drives your business’ s operational strategies. A business that lacks such a document is a giant red flag to a potential lender as it is an indicator of possible underlying management issues. When meeting with a lender, don’ t forget to include honest financial projections. These will be key to securing the lending product that best fits your company’ s needs.
According to the U. S. Small Business Administration, a complete business plan should include: executive summary, organization and management structure, company description, product and service lines, financial projections, market analysis, and marketing and sales strategies.
RED FLAG # 5: LACK OF A DOWN PAYMENT Not having a down payment can translate
BY: BRYAN STEPP, SENIOR VICE PRESIDENT & CHIEF LENDING OFFICER, OHIO VALLEY BANK
into a lack of commitment on behalf of the borrower. Think of the business loan as a team effort. The lender and business owners are members of that team. Every member of the team wants the same thing... success for the business. All members do not need to give equally, but all need to participate.
RED FLAG # 6: NO EXPERIENCE IN THE INDUSTRY Just because you eat at restaurants, doesn’ t mean you know how to run one. In a world where approximately 20 % of new small businesses fail in the first year 1, to secure funding, business owners and managers must demonstrate competency in their given industry. +
1. Source: U. S. Small Business Administration, Startup Rates & Firm Age Infographic, derived from Business Employment Dynamics Bureau of Labor Statistics, 2013
Bryan Stepp is Senior Vice President and Chief Lending Officer of Ohio Valley Bank, where he has spent the last 16 years helping businesses across southern Ohio and western West Virginia secure the financing they need to be successful. Prior to his time at OVB, he was vice president of business banking at BB & T. In all, Stepp has nearly 32 years of experience in the industry. He invites anyone with questions regarding business financing to reach out to him at bfstepp @ ovbc. com.
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