A Banker’s Perspective on Small Business Loans – Your Bank Demands “Cash Flow,” and So Should You

The more you think like your banker, small business, the more you can get from your banking relationship. As longtime coach of commercial credit, let me inside you mind your banker to address key issues in credit. Your ability to take perspectives of your banker, and not just his own, has a lot to do with your success in search of financing.

“C” on the creditworthiness of, and …

I found that it was all too easy for bankers to miss the most important issues determining the financial condition of its borrowers, and whether they are to repay their loans. To make sure that none of these critical issues missed when considering the request of credit to small business, I teach business bankers to remember a simple system of “C” word, as they view the data. Six C commercial loan “include the nature, number, condition, capital, collateral and cash flow.

Not everyone identifies “Cash Flow” as a separate criterion of creditworthiness. But in most banks, it has become such an important part of credit analysis, which I think deserves special attention in view, the banker … and as a business owner, as well.

Cashflow

In the end, “Cache” pays for everything, including debt. Bankers are looking for strong evidence that the business generates cash from each of the normal business cycle, sufficient to cover operations and debt. Cash flow is about much more than just profit, it means using what is earned properly.

Analysis of cash flows is highly technical and complicated process, but it is designed to answer basic questions like these:

* How is the money received from the business, where it come from? What are the sources of funds?
* These sources are stable and repeatable? Or am I the form of money from one-off events?
* How is the money used in business? Where did it go?
* Are these flows are predictable? There are basic types of funds in the future, the company that they are not doing now?
* Lee borrower property to understand their use and sources of funds, and take steps to explicitly manage to achieve optimal results? Can I see their efforts to manage cash flow reflected in the financial statements?
* What restrictions on industry practices and conditions, and their clients, and relationships with suppliers, put on their ability to manage cash flow?
* This is the money derived from business activities (eg, the owner compensation) in an amount that leaves the business vulnerable to shocks, are unable to respond to sudden changes in conditions?
* Is the generation of funds sufficient to support current operations? Or debt constant and indispensable element of their activities?