Preparing Your Business for Bank Financing: A Step-by-Step Guide

Securing bank financing requires thorough preparation and a clear understanding of what banks look for in potential borrowers. By preparing your business in advance, you can improve your chances of obtaining the financing you need to support your business growth.

Step 1: Understand Bank Expectations

Banks have specific criteria they use to evaluate loan applications. These criteria typically include your business’s financial health, cash flow, collateral, and overall risk profile. Understanding these expectations is the first step in preparing your business for bank financing. It is best to begin a solid relationship with a Commercial Relationship Manager who can answer important questions about their criteria for commercial loan approval, reporting, cash flow and collateral criteria.

Step 2: Maintain Detailed Financial Records

Accurate and up-to-date financial records are essential for securing bank financing. This includes maintaining a balance sheet, income statement, and statement of cash flows from the prior full month. These documents provide a clear picture of your business’s financial health and performance, as well as demonstrates how recent your financial reporting is to the bank.

Step 3: Conduct a Cash Flow Analysis

A thorough cash flow analysis demonstrates your business’s ability to generate enough revenue to meet its obligations, including loan repayments. This analysis should include an examination of your business’s cash inflows and outflows over a specific period. An important piece of information every bank will request is a Debt Schedule, which should be updated monthly to demonstrate a list of all business loans, payments, and other information found on our previous blog: Debt Schedules Make Bankers Happy.

Step 4: Evaluate Your Collateral

Collateral provides security for lenders and can improve your chances of securing a loan. Evaluate your business’s assets and determine their market value. This includes accounts receivable, inventory, equipment, and real estate.

Step 5: Create a Comprehensive Credit Memo

A credit memo is a critical document in the loan application process. It provides lenders with a detailed overview of your business’s financial health, including cash flow analysis, collateral details, and financial statements. A well-prepared credit memo can significantly improve your chances of securing financing. Not sure what a credit memo should look like? Reach out to your banker and ask for a sample copy of one so you can get prepared for what’s required to build a credit memo. Think of a credit memo like a book report, and your business is the book!

Step 6: Work with a Professional Debt Advisor

Working with a professional debt advisor like Green Zone Capital Advisors can provide you with a strategic advantage. Our expertise in the commercial lending industry and robust network of lenders allows us to identify the best financing opportunities for your business. We ensure that all necessary financial documentation is meticulously prepared and presented to the lender in a way that maximizes your chances of approval. Part of the Green Zone process is building your very own credit memo to share with a lender. This gives you detailed insight “from a lender’s perspective” about your business and what would be said about you and your business in a bank’s credit committee.

The Green Zone Advantage

Preparing your business for bank financing requires thorough preparation and a clear understanding of what banks look for in potential borrowers. By maintaining up to date detailed financial records, conducting a cash flow analysis, evaluating your collateral, and creating a comprehensive credit memo, you can improve your chances of securing the financing you need. Green Zone Capital Advisors is here to guide you through this process and help you achieve your financing goals.