Finding your way in the new banking environment

Getting to know the new sheriff

Getting to know the new sheriff. Whether you are an established bank customer or seeking a new relationship after the recession, everyone has to get to know the new regulatory sheriff and banking reality.

 

Have your paper work in order.

When you go in to visit ANY banker that you intend/hope to start a new business relationship with, there are certain documents you will always need.

  • A current personal financial statement,
  • a current corporate financial statement (if applicable),
  • three years tax returns for you and any related entity,
  • a sources and uses of cash schedule,
  • a brief description of your borrowing needs, and
  • what are you pledging as collateral. 
This list is by no means conclusive, but it is an essential basis begin your conversations. Your personal financial statement looks at you (and your spouse if assets are jointly owned) as an individual and your corporate financials look only at your business. Both are a snapshot in time so pick a date that can easily be verified if/when requested to do so. The asset side lists everything you own and the liabilities side tells what you owe. The difference between your assets and liabilities is your net worth. Tax returns for you and your business are a must so go ahead and have them ready. If you are behind and haven’t filed this year's taxes yet, do so before you see your banker. A current year’s extension is sufficient but you will probably need the final return before your loan can be completed even if all else is ok. A "sources and uses of cash schedule" is a summary of where money comes from and where it goes. Preopare it as It will serve as a good litmus test to see if you can afford to pay back the loan. And finally (although first in your conversations) your story about why you want to borrow the money and how are you going to collateralize that loan.

Be prepared for the reality that your collateral will be discounted substantially in value to cover your loan. Bankers always believe the market for your collateral is headed south so they want to stay ahead of the curve. And they have a to include the cost of asset sale if it were to become necessary. New lending guidelines make some assets seem worthless. Remember, bankers are not mind readers so anything else you can provide documentation wise to help bolster your case, bring it. You know your situation better than anyone so do all that you can to help yourself. Otherwise, if you do little and leave your future to fate… good luck…

 

Don’t play hide the ball.

Bankers, while often accused of being simple minded, can no longer afford to be mesmerized by dog and pony shows where borrowers attempt to “hide the ball”. Either the ball is there, or it is not. If it is not there, don’t pretend it is because you will look stupid when they find it is not. Conversely, if the ball is a stinker, don’t try to hide it because they will be mad when the turd surfaces. Both scenarios are losers and both may even rise to the level of FRAUD if your attempts are that serious. Know your situation and present it in the best light possible but be FAIR. Relatively small problems that are presented fairly and with candor can often be worked through or addressed to the bank's satisfaction. Bigger problems are not always so lucky but are respected if handled openly. If honesty and openness are used on day one, trust is created and can form the frame work to move forward.


  
  

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