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QUESTIONS A BANKER IS GOING TO ASK What can you, as a businessperson, do to better prepare yourself when going to a banker for a loan? The following are some basic questions that a lending officer may ask you when you sit down at their desk and request a loan. THE CRITICAL QUESTIONS
MINOR QUESTIONS USUALLY MUCH LESS CRITICAL
DO YOU HAVE A WRITTEN BUSINESS PLAN? 1. The business plan and the purpose of the loan should make good business sense. For start up funds or for an exiting business it might be for purchasing additional inventory, financing accounts receivable, taking discounts on purchases from suppliers, or purchasing some type of new equipment or machinery. The amount of money you are requesting must be supported by a profit and loss and cash flow projection. If you ask too little, you may find yourself with insufficient capital for your business operations. On the other hand, if you ask for too much money, you may be increasing your likelihood of being turned down by the banker if they do not see that your request is reasonable and based on factual business judgment. HOW MUCH DO YOU, THE BUSINESSPERSON, HAVE IN KNOWLEDGE OR EXPERIENCE? 2. The banker will want to know how much first hand experience, training, and education you have had in the business that you are operating. HOW IS YOUR CREDIT RATING AND HOW MUCH PERSONAL DEBT DO YOU HAVE? 3. The banker will run a credit check and want to know how much personal debt you have. If you are highly in debt personally, you may find yourself forced to withdraw large sums of money from the business in order to service your personal obligations, and in doing so, jeopardize the financial strength of the company. HOW MUCH MONEY DOES THE BUSINESSPERSON HAVE TO PUT INTO THE BUSINESS OR HOW MUCH MONEY HAVE YOU ALREADY INVESTED IN THE BUSINESS? 4. The banker will want to know if you have sufficient capital and cash flow in order to operate your business properly. This insures the survival of the business, as well as the protection of its assets. If there are losses to the business this jeopardizes the bank's loan to the business. TO SUPPORT YOUR LOAN REQUEST? 5. Collateral owned personally by the businessperson which can be assigned to the bank:
Collateral owned by the business which can be assigned to the bank:
HOW MUCH COMPETITION WILL YOU BE FACED WITH? 6. The banker will want to know if you have taken a marketing survey of the competition in your general area and competition of your local competitors as to their price and quality of the same merchandise or service that you intend to market. DO YOU HAVE PERSONAL AND BUSINESS INSURANCE? 7. Personal insurance is important to the business person in order to protect his business if he passes away, and at the same time protect his personal assets, estate and family from creditors. Also your business may require various other types of insurance, such as fire, theft, business interruption, vehicle, and employer compensation insurance. DO YOU AS A BUSINESS PERSON HAVE THE SERVICES OF AN ACCOUNTANT 8. If the business person does not have the services of an accountant, many bankers are reluctant to deal with them. There is a strong feeling among many bankers that a third party looking in on the business records, bank records, and operations of a business is necessary in order to obtain an objective evaluation and financial analysis of a business through the presentation of the quarterly and yearly financial statements. DO YOU HAVE THE SERVICES OF AN ATTORNEY? 9. The maintaining of the services of an attorney by the business person is like having insurance; the business person cannot always forecast when an attorney's services may be required - but when trouble arises, you may need an attorney. PERTINENT ITEMS
TO BE INCLUDED IN A LOAN REQUEST From Business to be acquired:
From Applicant:
(*) Not Applicable to Start Up Business. BUSINESS EXPANSION:
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