Obtaining bank loans in this economy is different than it has been in the past 5 years though not impossible. Understanding how to approach a banker in this economy is crucial to success.
Recently banks required 3 years financial statements, 3 years tax returns and personal financial statements in order to loan a company money. Now they are wanting much more information. They are now focusing on the soft issues; management team, marketing plan, operations, etc. They are looking for companies that have a good strategy and management team in addition to good underwriting criteria.
In addition to the Five C’s of banking they are looking for companies with
– Discipline
– Credibility
– Relationships
When approaching bankers character is returning as a big factor in who they are going to loan money to.
Finally, with capital so tight interest rates are not as important or negotiable for loan. At prime rate so low the interest rate is not a factor. What is important to banks and to the entrepreneur is debt covenants.
Two of the most important debt covenants to banks are the ones related to cash flow and collateral coverage. These two areas limit the amount of leverage that your company can achieve.
Now is the time for CFO’s to get creative on developing a strategy to operate the business in this environment and to start courting their banker.