Start thinking about your credit options before you need a financing, so you’ll be ready when the time comes.
What questions might a lender ask before offering to help finance your company? Thinking like a banker can help you build a compelling case to secure funding and show you know what’s involved in establishing credit.
Developing an appealing business story may take time, but it’s worth the effort. An engaging narrative can provide your banker with valuable insight into your company operations, management discipline, and long-term business plans.
Take some time to think about your company’s credit request. What can you control? What can you manage? What can’t you control?
Things you can control
- A strong business plan to put capital to work – When considering a credit application, bankers want facts and details, not just ideas. Present a well written and clearly articulated financial plan detailing how you intend to use additional funding to expand your business. Establish terms your company can agree to and build loan specifics into your projected profitability forecast.
Describe your business, how you plan to allocate loan capital, and how that capital will fuel your company’s growth. Use your management team and key advisors (including your Truist banker) to present your company’s argument for credit approval, sharpen your profitability forecasts, articulate your business model, and—if need be—put it all into writing.
- Professional and credible financial statements – A compelling business plan needs polished financial statements. Smaller companies might be able to rely on compiled financial statements, but larger companies or those with more complex credit needs must show audited statements.
Audited statements certify that your business follows Generally Accepted Accounting Principles (GAAP) and that a third-party has validated internal controls. Depending on your company’s size and history, lenders may require personal and business financial statements before backing closely held private companies.
- A solid working relationship – Relationships inform financial decisions. The more your lender understands about you and your business, the better your chances are of securing credit approval. Establish rapport with your banker before your company needs capital. Understand the role your banker plays on the lending team. Recognize that a working relationship is a two-way street and that your bank is probably looking for a long-term relationship beyond a single product or service.
Things you can manage
- Collateral – Traditional loans may require your company to secure financing with collateral, which are assets with high liquidity like cash, inventory, investments, equipment, or real estate.
Have you considered a Small Business Administration (SBA) loan? For businesses within certain size restrictions without tangible assets, an SBA loan might allow your company to waive collateral requirements.
- Capacity for repayment – Lenders need evidence that your business can repay its loan. That may require global loan coverage, which is enough cash flow to easily make monthly loan payments. When conventional financing isn’t an option, SBA loans help smaller companies with limited cash flow extend repayment terms up to 25 years for real estate loans.
- History – You can't change your company’s history, but you can decide how to present it to your lender. Your business’s past performance can help your banker project its future prospects. Be sure to highlight proactive expense control, profitability, and your company’s ability to adapt, especially in a crisis or downturn. SBA loans can accommodate smaller companies and businesses in an early stage with only a year or two of financial history.
Things you can’t control.
- Industry risk – Certain types of businesses have associated risks that some lenders may not be positioned to handle. Be sure to ask your banker how your industry is viewed in advance.
- Economic climate – Interest rates fluctuate and credit availability changes with the business cycle. Anticipate your company’s financial needs and use your working relationship with lenders to take advantage of credit when its available and interest rates when they are lower. Like all financing, the best time to receive capital is when you don’t need it.