What you need to know about getting a business loan

Developing and maintaining a relationship with your banker has never been more important. Most businesses rely on their bank for essential services such as checking & savings accounts, equipment loans, working capital lines of credit and commercial mortgages. A business owner’s relationship with their banker should be built on mutual trust and respect and based on value not price. The old adage “you get what you pay for” is applicable to most things in life including a business banking relationship. It may cost a bit more for a banker who is truly a valuable business advisor rather than simply an order taker, but it’s worth it!!!
A specific value that a banker can add to the business relationship, especially today is to educate their clients about what is typically needed when applying for a business loan. Most business owners are unsure what bankers are looking for when evaluating a loan request. That confusion can only be compounded today by all the talk of tight credit. Credit is absolutely available today. In order to avail themselves to it, business owners should be aware of the process that goes into considering a loan request and the type of information and documentation they will be expected to provide.
When a business owner is seeking a loan they should be prepared to discuss:
1. The amount of the loan
2. The purpose of the loan– to purchase assets, payoff old debts, fund operating expenses, buyout a partner, etc
3. The security being offered for the loan – collateral such as real estate, equipment, inventory, accounts receivable, stocks, bonds, etc
4. The term of the loan – how long will it take to repay the loan
5. The company’s financial condition – past, present and future
The banker will typically look for documentation to support the loan request and measure the relative financial health of the business and the principals…documentation such as:
1. Federal tax returns (2-3 years) for both the business and principals
2. Year-end financial statements (2-3 years)for the business
3. Year-to-date and projected financial statements
4. A personal financial statement – listing what the principals own & owe
5. Business bank statements (2-3 months)
Lending money is all about managing risk. To help bankers evaluate risk more completely they will typically test a loan request and accompanying financial data against the following criteria.
1. Character – Does the borrower exhibit character or integrity? Does the business and its owner have a good reputation in the community?
Does the borrower exhibit a good credit history? Does the business and its owner pay their creditors on time?
2. Capacity – Does the borrower exhibit the financial capacity to repay the loan requested? Is sufficient cash flow available to make the payments?
3. Capital – Does the borrower exhibit sufficient capital to support the loan requested? Is there sufficient cash for a down payment and for a cushion in case business gets slow.
4. Collateral – Can the borrower provide sufficient collateral to secure the debt? Are there assets such as real estate, equipment, A/R or inventory that can be pledged to the bank as security for the loan?
5. Conditions – Is the condition of the borrower, the borrower’s industry and the general economy favorable to the repayment of the loan? Are there aspects of the business, the industry or the economy that would negatively impact the ability to repay?

Loans for small businesses are available. Community banks are ready, willing and able to provide that much needed financing. But, now more than ever businesses must be able to provide the information and the documentation necessary for bankers to assess and mitigate the risks inherent in making loans. Being prepared before you apply is an important first step which will accelerate the process and increase your chances for an approval.

Financial Empowerment for Women

(Things I wish my mother had taught me about money)

Men & Women are different. Did you know:
•Women leave the work force for an average of 11.5 years, compared to 16 months for men?
•A woman who leaves the work force for only seven years early in her career may receive half the retirement benefits of her male counterpart?
•Women are still paid an average of 20% less than their male counterparts?
•Only 49% of women have savings and investments greater than the total amount they owe on any consumer debt?
•Women live longer than men — an average of seven years?
•50% of women over age 65 outlive their husbands by 15 years?
•Three in four women are single when they die?

Due to these statistics, women need to be more in control of their financial future. Women tend to make the following financial mistakes: 1) Women invest later in life and more conservatively than men. Since women live longer and usually outlive their husbands, women need to invest earlier in life and make it a priority. 2) Women participate less often in 401(k) programs than their male counterparts. Partipating in company's 401(k) programs or IRAs are tax deferred investments. If you are in the 28% tax bracket, one out of every four dollars you put into a 401(k) or IRA is a reduction in your taxes not in your net paycheck. 3) Women are more likely to invest in their children’s college education than in their own retirement. Investing in your children's education is good but only after you have maxed out what you can invest in your retirement. You or your child can get a loan for their education but you can not get a loan for your retirement. In addition, your retirement savings are not counted against you (or towards what you can pay for tuition) when colleges are figuring out your financial aid. However, money you have set aside for your children's education will be deducted from the amount of financial aid you will receive.

Things I Wish My Mom Taught Me About…. Managing My Cash
•Spend less than you earn. This seems like common sense but many people spend more than they earn. Women need to take an inventory of what income they have coming in per month and what their expenses are. While creating a budget is a good tool, most people don't follow them or even look at them once they are done. If you have trouble controlling money in just a few categories, such as clothing or entertainment, create and adhere to a detailed budget for just these categories.
•Pay yourself first. Have your retirement taken out of your paycheck before you do anything else. This forces you to save and not have that money available to spend

Things I Wish My Mom Taught Me About….Savings
•Create an emergency fund equal to 3 - 6 months pay. Prepare for unexpected illness, accident or becoming a victim of corporate downsizing. Keep funds liquid and easy to access.
• Teach your children to save. You can accomplish this with young children by taking their birthday or holiday money and putting it into a savings account. Show them how much they have a few times a year. If you child wants a toy that is too expensive, have them save up their money to purchase it. If you have teenagers, force them to save a percentage of their paycheck that can't be touched by them, but offer an incentive. For example, I will pay for $100 per month of your gas expense if you save 50% of your paycheck.

Things I Wish My Mom Taught Me About ….Retirement
•Don’t count on social security. Depending on how old you are, social security might not be available when you retire.
•Saving for retirement is similar to an exercise program. The more you put into it, the more you will get out, and regular investing is key.
•If your employer matches 401K investments, get the entire match. I am amazed at how many people don't put enough into their 401k to get the employer match. It is FREE money for retirement.
•Don’t cash out your 401K. Pretend that your hard-earned, 401K-money was never yours to begin with. Otherwise, you will have to pay taxes & penalties, and work forever.

Things I Wish My Mom Taught Me About ….Credit Scores
•Factors that affect your credit score: Delinquencies, accounts opened during the last year, balances on revolving credit that are near limits, tax liens, bankruptcies, recent credit inquiries, too few (or too many) revolving accounts.
•Pay your mortgage on time. Too many people when they are short of money pay other bills before their mortgage. You need a place to live, if you don't pay your mortgage the bank is going to take your home.
•Always pay bills on time. Late payments negatively effect your credit score.

You can get a free copy of your credit report at http://www.annualcreditreport.com/

Things I Wish My Mom Taught Me About ….investments
•Choose the right Financial Advisor. Ask people you trust for a referral to a good financial advisor. In your initial meeting ask how they are paid, some are fee-based, meaning you pay a flat fee for them to manage your money and some are commission based, they get a percentage of your portfolio (i.e. 1%) or they get a commission on each trade. You need to know how they get paid and feel comfortable with that. Trust your instincts, if you don't like the person, don't trust them with your money. A good financial planner should find out about your lifestyle, when you expect to retire, what you want to do when you retire, where you will live, etc.
•Join a Club. An investment club will teach you about stocks and bonds. Money Club is a FREE service from WIFE.org, a non-profit organization co-founded more than twenty years ago. Find out more at www. MoneyClubs.com.

Managing your finances can be scary so ask for help from people you trust. As Marie Curie says:

“Nothing in life is to be feared. It is only to be understood.”

This article was written by Ms. Elijiah Gray, CFO of MileStone Bank.

www.milestonebank.com